China Vanke

China Vanke says no talks with Evergrande despite stake increase

PUBLISHED : Thursday, 10 November, 2016, 7:04pm
UPDATED : Thursday, 10 November, 2016, 11:02pm

China Vanke, the country’s largest homebuilder, said there hasn’t been talks between it and rival China Evergrande Group even as the latter has just increased its shareholding in Vanke to 8.285 per cent.

Analysts expect Evergrande will continue to increase its stake in Vanke, which has been at the centre of a high-profile control battle.

“We didn’t have any communications and we don’t know their purchase plan,” Zhu Xu, secretary to the board of Vanke, told the Post in a phone interview.

Evergrande, which is listed in Hong Kong and controlled by billionaire Hui Ka Yan, on Wednesday announced it had increased its shareholding in Vanke to 8.285 per cent, up from 6.82 per cent. The firm has paid a total 18.77 billion yuan since its first began accumulating shares in Vanke four months ago.

Vanke’s shares in Hong Kong surged 4.4 per cent while its shares in Shenzhen rose 1 per cent on Thursday.

Once Evergrande holds a 10 per cent in Vanke, it has the right to unilaterally call a shareholders’ meeting, according to Vanke’s articles of association.

“We believe their acquisition in Vanke will continue,” said John So, a property analyst at China Merchants Securities.

If Evergande increases its stake to 20 per cent, it can consolidate Vanke’s profit in its balance sheet
David Hong, China Real Estate Information

Although Evergrande’s intentions remain unclear, analysts say the strategy is apparently not just for investment, and they won’t be surprised if Evergrande mounts a takeover bid for Vanke.

“If Evergande increases its stake to 20 per cent, it can consolidate Vanke’s profit in its balance sheet,” said David Hong, head of research at China Real Estate Information.

Vanke’s scale and profit-making ability are attractive for Evergrande, especially as it is seeking a backdoor listing in Shenzhen to achieve a higher valuation.

Evergrande is one of China’s biggest and most indebted developers. Its net gearing ratio was 430 per cent at the end of June, while Vanke’s was only about 80 per cent.

Raymond Cheng, a property analyst at CIMB Securities, said Evergrande’s leverage could be reduced and its financing channels would be broadened if it can take over Vanke.

But it remains questionable if Evergrande can buy shares from other major Vanke shareholders, he said.

The management of Vanke has been trying to fend off a potential hostile takeover by little known conglomerate Baoneng Group, its current largest shareholder.

Shenzhen-based Baoneng controls 25.4 per cent of Vanke while state-owned China Resources holds 15.3 per cent. Evergrande first made a foray into Vanke in July and replaced Anbang Insurance as Vanke’s third largest shareholder.

Vanke proposed introducing state-owned subway operator Shenzhen Metro as its largest shareholder through an asset swap in a bid to dilute Baoneng’s shares, but faced opposition from both Baoneng and China Resources.

Zhu said the company is still “under negotiation” with Shenzhen Metro over the deal.

She also said neither Evergrande nor Baoneng have requested board seats at the moment. The current board member terms expire in March next year.