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China Vanke

Vanke shares surge to all-time high after Evergrande becomes its third-largest shareholder

Analysts divided on whether move is simply a sensible investment, or shows Evergrande’s billionaire chairman is planning a major role in Vanke takeover battle

PUBLISHED : Tuesday, 16 August, 2016, 10:40am
UPDATED : Tuesday, 16 August, 2016, 11:29pm

China Vanke shares rose by the daily limit of 10 per cent for a third consecutive day on Tuesday, after rival China Evergrande Group raised its stake in the country’s largest property developer to nearly 7 per cent.

The move stoked further speculation that Evergrande’s chairman Hui Ka Yan could now be planning a more influential part in the ongoing takeover battle for Vanke.

In a filing to the Hong Kong stock exchange on Monday night, Evergrande – China’s second largest developer – said it had spent 14.5 billion yuan buying 752.7 million Vanke A-shares in the past fortnight, including buying a further 235.8 million shares between August 8 and August 15.

The company claimed in the statement the acquisition was an “investment” because of Vanke’s “strong results”.

The company now holds a 6.82 per cent stake in Vanke, surpassing Anbang Insurance as its third largest shareholder.

Vanke shares in Hong Kong also climbed 2.2 per cent to HK$20.95, while Evergrande shares rose 0.68 per cent to HK$5.91.

The Vanke battle is becoming more complicated, with too many uncertainties
Ding Zuyu, chief executive of industry consultant E-House

“The Vanke battle is becoming more complicated, with too many uncertainties,” said Ding Zuyu, chief executive of industry consultant E-House.

The battle of control of Vanke first spilled into the public domain last year when Baoneng Group, an obscure Chinese conglomerate, emerged as the developer’s biggest shareholder.

Vanke chairman Wang Shi publicly decried Baoneng as “unwelcome” and embarked on a plan to sell shares to Shenzhen’s metro operator – a move widely viewed as an attempt to dilute Baoneng’s stake. That plan was met with opposition from another key shareholder, state-owned China Resources Co.

Baoneng has built up a 25.4 per cent stake in Vanke since late last year, and is now its largest shareholder.

Analysts were divided, on Tuesday, on Hui’s intentions towards Vanke.

Martin Lau, the portfolio manager at First State Global Umbrella Fund which holds Vanke’s Hong Kong shares, said: “Mainland firms now enjoy ample liquidity and low interest rates, so they are seeking good investment targets,” adding that Vanke’s valuation and dividend yield is attractive.

But JP Morgan wrote in a note that its analysts “expect this will eventually turn into a strategic investment,” by Evergrande.

Evergrande is in a very good position. If it exits, it can earn huge financial benefits. If it advances, it can potentially increase its clout in Vanke, and even take control of the company
Liu Feifan, analyst with Guotai Junan Securities

Hua Sheng, an independent director at Vanke, who had been vocal throughout the corporate tussle drama, also suggested Evergrande and other major buyers had increased their investment in the business so they can use it as a platform to borrow more fund for themselves.

Liu Feifan, an analyst with Guotai Junan Securities, added: “Evergrande is in a very good position. If it exits, it can earn huge financial benefits. If it advances, it can potentially increase its clout in Vanke, and even take control of the company.”

But Liu said he did not believe Hua’s intention is being driven by any need to refinance, as Vanke is under so much regulatory scrutiny as the takeover battle rages.

He added that the arrival of Evergrande as a major shareholder has further widened its shareholding structure, with only small amounts of shares available still for public-trading, and this structure is prone to manoeuvre by the biggest investors.

“How sheep (referring to retail investors) compete with wolves (major corporate investors) and exit before the tide ebbs, requires both wisdom and courage,” director Hua said on his microblog account.

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