China property

China Resources move in Vanke fight raises concern

PUBLISHED : Tuesday, 28 June, 2016, 11:47pm
UPDATED : Friday, 15 July, 2016, 10:32am

The state agency which oversees China Resources (Holdings) has deep reservations about the company’s behaviour in the high-stakes battle for control of China Vanke, the country’s largest homebuilder, a source at the State-owned Assets Supervision and Administration Commission (Sasac) said.

Meanwhile, a source at the China Securities Regulatory Commission said China Resources and Baoneng Group – the two largest shareholders of Vanke – would be punished and their shareholder rights restricted if they were found to have illegally acted in concert.

China Resources last week broke its silence over the saga by joining Baoneng in blocking a restructuring plan proposed by Vanke’s management team, more than six months after it had stayed out of the fight between Vanke’s management team and Baoneng, a financial conglomerate.

“China Resources has been watching the developments and looking for a solution best to its interest,” said Liu Feifan, a property analyst with Guotai Junan Securities. “Now, it looks like it wants to reclaim its status as the biggest shareholder.”

The tricky issue is “how big” China Resources wants to be.

Some analysts said the company might want to take over the stake owned by Baoneng, which would give it almost 40 per cent of the current equity of and a dominant say in Vanke.

In the past, China Resources had always been a supportive and quiet shareholder, letting Vanke’s management team run the show even through it held the largest stake.

As China implements its 13th five-year plan, state-owned enterprises are under pressure from the central government to push forward reform to become more efficient and profitable.

“At the end of the day, China Resources is a SOE. Baoneng would not dare to compete and would step aside and cash out if China Resources wants to take control,” said an analyst in Hong Kong who asked not to be named.

“However, the central government may not support China Resources if it crosses the line – it does not want to confuse the market by supporting SOEs encroaching on the benefits of the private sector.

“China Resources has always been among the state-owned enterprises selected to spearhead reform. What it does carries great political implications and demonstration effect.”

Liu Shuwei, a professor at the Central University of Finance and Economics, in an article on Sunday, urged China Resources to explain why it had remained silent when Vanke was facing a hostile takeover, and why it had acted in unison with Baoneng now.

Liu also urged Sasac and financial regulators to state their stance over the chaos.

“If China Resources and Baoneng have secret talks, small investors will be taken advantage of,” she said.

“Was China Resources’ criticism of Vanke’s management reviewed by its party commission?” she asked.

Liu also said mainland investors’ confidence in the stock market, which was just recovering from last year’s rout, would be devastated if China Resources “goes against the purpose of the Communist Party”.

Vanke’s 45.6 billion yuan (HK$53.2 billion) restructuring plan aims to introduce Shenzhen Metro Group as its biggest shareholder through an equity swap.

Three days after the joint rejection of the plan, Baoneng proposed on Sunday to oust 12 directors in Vanke’s current board, including company founder Wang Shi and core management executives, blaming them for not executing responsibilities properly.

On Monday, the Shenzhen Stock Exchange asked Baoneng and China Resources to clarify whether they were acting in concert to block the deal with Shenzhen Metro.

There was no deadline for an answer.

“The proposal to dismiss Vanke’s directors and supervisors is credit-negative and, if it materialises, could pressure its rating or outlook,” rating agency Moody’s Investors Service said in a note on Monday.