Real Estate

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

That China's biggest developer, and one with a rising profit to boot, is in demand shouldn't come as much of a surprise. It's a shame, then, that all the fighting for control of Vanke and management's attention on finding a successful poison pill risks pulling it down just when things in its home market of Shenzhen, at least, are looking up.

On Sunday, Vanke reported a 10 percent increase in first-half income to 5.35 billion yuan ($803 million). Chairman Wang Shi should have been celebrating but he's got a lot on his plate, what with a shareholder fight that's been going on since the end of last year when Baoneng Group emerged as the company's biggest investor, displacing state-owned China Resources. A rescue attempt involving Shenzhen Metro was thwarted and more recently, rival builder Evergrande has been increasing its stake, as has closely held conglomerate Anbang Insurance.

Vanke's allure for corporate raiders, outside of its size, lies in part with an attractive forecast dividend yield at a time when investors everywhere are desperate for returns, according to Bloomberg Intelligence analyst Patrick Wong.

The Shenzhen-based homebuilder has an expected dividend payout of 4.6 percent, above the 3.9 percent industry average. Evergrande is at 6.8 percent, but Vanke's appeal for it is probably the opportunity to consolidate with a less indebted, larger competitor down the track.

Fleeing institutional investors, however, should serve as a warning sign. Aberdeen Asset Management dumped all its Shenzhen-listed Vanke shares after a six-month trading halt was lifted on July 4. Other money managers and advisers have trimmed their positions to 7.2 percent of publicly reported holdings from 19 percent in December, data compiled by Bloomberg show.

Falling Fan Base
Institutional investor ownership of Vanke's Shenzhen-listed shares has slipped after gains last year as real-estate prices recovered
Source: Bloomberg

The ownership turmoil, which sparked a rare public reprimand from China's securities regulator, has also damaged Vanke's business.

The company said in its statement Sunday that the uncertainty had affected operations, with partners in 31 of its projects asking for terms to be changed, suspensions or possible terminations because of the ongoing situation. Vanke also said challenges may increase in the second half, and S&P and Fitch might adjust the company's credit ratings due to the ownership issue.

A management team distracted by constant upheaval is a test for even Everest-scaling Wang, who's known for his ability to successfully wrestle with difficult problems. And after the stock suspension was lifted last month, shares in Vanke have seesawed.

Ups and Downs
Vanke stock is falling again after briefly outperforming the broader Shenzhen benchmark
Source: Bloomberg

This could be one of those rare instances where Vanke shareholders should hope that Beijing, often accused of interfering, does step in to stop the infighting. At a time when China's real estate market looks to be at risk of splintering, management has far more important areas on which to focus.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net