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August 17, 2016

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Evergrande lifts stake in Vanke to nearly 7% in battle for control

A battle for control of China’s largest home builder heated up after the country’s No.2 player raised its stake in China Vanke to nearly 7 percent, sending Vanke stock higher with investors and analysts betting more share raids are in store.

The move by highly indebted but ambitious China Evergrande Group comes amid a rare public Chinese boardroom spat. Vanke is already fending off a potential bid from its biggest investor, financial firm Baoneng Group, which has built up a 25 percent stake despite the developer’s protests.

In a filing late on Monday, Evergrande said it had paid 5.46 billion yuan (US$823 million) for another 2.14 percent stake in Vanke, becoming its No. 3 investor. The stake increase came nearly two weeks after Evergrande surprised investors by buying 4.68 percent of Vanke for 9.1 billion yuan, citing the latter’s “strong results” as a reason for the investment.

Evergrande first announced on August 4 that it had acquired around 4.68 percent of Vanke shares through a subsidiary for 9.1 billion yuan, a move with an investment purpose. Vanke said in a statement to the Shenzhen Stock Exchange a few days later on August 9 that Evergrande’s stake in Vanke had been further raised to 5 percent.

Officials at Vanke, worth about US$40 billion by market value, declined to comment on Evergrande’s latest move. Evergrande, which has a market capitalization of about US$10 billion and had total long-term debt twice that amount as of end-2015, declined to comment on whether it might increase its holding or seek representation on Vanke’s board.

“Evergrande will buy more; from its track record it wouldn’t stop at a 6 percent-plus stake,” said UOB Kay Hian analyst David Yang in Shanghai. “Getting involved in this (Vanke) battle will not do Evergrande much harm.”

Yang said he expected Evergrande to seek seats on Vanke’s board at the latter’s next annual shareholder meeting in March 2017.

In a report earlier this month, JP Morgan analysts wrote that Evergrande, which has a track record of hostile takeover attempts, hoped to exercise influence on Vanke.

Shares in both home builders rose yesterday after Evergrande disclosed a move that leaves only Baoneng and state-owned China Resources Group as bigger investors in Vanke.

Evergrande’s continuous acquisition of Vanke shares was believed to be the reason behind the recent stock rally of Vanke, which has been brought under a media spotlight due to a year-long, high-profile tussle for control against Baoneng Group.

Shenzhen-listed shares of China Vanke, which resumed trading on July 4 following a six-month suspension, closed at 27.57 yuan yesterday, an all-time high for the Shenzhen-listed developer.

In Hong Kong, Vanke shares also climbed 2.2 percent to HK$20.95 (US$2.7) yesterday. Evergrande rose 1 percent.

Wang Shi, Vanke’s chairman, has publicly opposed Baoneng’s moves in the past, urging regulators to investigate the funding of its purchases of Vanke shares. Baoneng has declined to comment on Vanke’s request.

Evergrande has spent over US$4 billion snapping up shares in companies this year, including taking control of smaller rival China Calxon Group, and earlier this month ratings agency Moody’s said its first Vanke purchase was credit-negative.

Still, early this month it paid about US$60 million to buy more of trading company Langfang Development Co Ltd, raising its stake to 15 percent.


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