China Vanke shares hit record high as rival Evergrande increases stake

The share price of China Vanke, the property giant at the centre of a boardroom tussle that has been gripping the country since last year, hit a record high on Friday morning, after its third largest shareholder increased its holding.

China Vanke, the mainland’s second biggest homebuilder, surged 7 per cent to hit a seven-year high of 28.9 yuan in the morning session, before giving up some ground and closing for the mid-session break at 28.45.

The surging share price came after China Evergrande, a shareholder and rival in the property business, disclosed last night in a filing to the Hong Kong bourse that it had raised its direct holding to 9.45 per cent of Vanke’s total equity.

It has been widely reported that China Evergrande’s allies, including Hong Kong-based New World Development, are also snapping up Vanke stock on the mainland A-share market and Hong Kong’s H-share market, though their specific positions remain unknown.

Last Wednesday, Evergrande disclosed it had amassed 8.3 per cent of Vanke’s total shares. Its holding of Vanke’s A share on the mainland market alone took up 10.2 per cent of the total.

Evergrande has been keeping its cards close to its chest, giving little away about its intentions regarding buying Vanke’s shares. Many analysts believe the heavily indebted Evergrande is probably seeking to improve its financial condition by consolidating Vanke’s balance sheet.

David Hong, research head of China Real Estate Information Corp, said the valuation of China Vanke is “becoming too expensive”, as the battle among different parties for control of the company continues.

“The market value of Vanke has surpassed its net asset value, a rare case among China’s property developers,” he said.

“China Vanke’s land reservation has been lower than most of its peers, given its unique business model, and investors have been overweighting talented employees in the company for the valuation. However, a continued boardroom tussle may drive away talents, impairing the company’s cutting-edge competitiveness,” he said.

Even if the share price corrected, the harm to Evergrande would be limited if it could take over Vanke’s land bank, Hong added.

Vanke’s biggest shareholder is emerging insurance group Baoneng, which controls a 25.4 per cent stake after it started to accumulate share in the developer in late 2015. The company has been barred from the boardroom by Vanke’s management team as an unwelcome hostile acquirer.

The second biggest shareholder is state-owned conglomerate China Resources, with a 15.24 per cent stake.