China Vanke Surges Most in 14 Months on $9.2 Billion Deal

  • Assets to be bought valued at as much as 60 billion yuan
  • Vanke plans to fund the purchase mainly through share sale

China Vanke Co.’s Hong Kong-traded shares jumped the most in 14 months after the developer announced a deal that could thwart a hostile takeover bid, easing uncertainty about its future management.

Vanke signed a memorandum of understanding with Shenzhen Metro Group Co. to acquire a stake in a unit estimated at 40 billion yuan ($6.1 billion) to 60 billion yuan, Vanke said in a statement to the Shenzhen stock exchange Sunday. The move could potentially make the southern Chinese city’s urban transit company Vanke’s largest shareholder, some analysts said. Vanke plans to fund the acquisition mainly by selling new shares to Shenzhen Metro, and pay cash to make up for a potential shortfall.

China’s largest publicly-traded developer has been trying to fend off little-known Baoneng Group, which emerged as its largest shareholder in December. The developer’s management questioned the credibility of Baoneng and labeled its approach a hostile takeover. Shenzhen-based Vanke said in December it was planning a share sale, prompting speculation the move was designed to dilute Baoneng’s ownership.

“If this potential asset injection is fully funded by the new share placement, the transaction should make Shenzhen Metro Group Vanke’s largest shareholder,” according to a Credit Suisse Group AG note to investors dated Monday. Vanke’s “progress in restructuring should be a positive catalyst” for the company’s Hong Kong-listed H shares, Credit Suisse analysts led by Jinsong Du said.

The shares jumped 10 percent to close at HK$20.15 in Hong Kong, the biggest increase since January 2015. The move extended the stock’s gain in the past 12 months to 22 percent, compared with a 14 percent decline in the benchmark in the period. The deal’s announcement coincides with the builder posting a 15 percent increase in full-year profit to 18.1 billion yuan on Sunday, beating analysts’ estimates.

Ownership Battle

The proposed acquisition “lights up the hope” of ending the shareholding battle, Edison Bian, a Hong Kong-based analyst at UOB Kay Hian Ltd., wrote in note Monday.

The size of the share sale and the stake to be acquired have yet to be decided, with no formal or binding agreement signed. The companies canceled a press briefing on Monday, with a Vanke spokeswoman saying the two weren’t well-prepared due to time constraints.

Later in a briefing in Hong Kong, Vanke president Yu Liang said the question of whether Shenzhen Metro will become the developer’s largest shareholder is still under discussion. Yu pledged to create a “win-win situation” for all shareholders, adding the restructuring must benefit all shareholders as well as a long-term development of the firm.

The transaction is pending approval from the board and shareholders, and Vanke’s Shenzhen-traded shares will remain suspended. Vanke is scheduled to hold an extraordinary shareholder meeting March 17 on its plan to keep the Shenzhen-listed shares halted longer for the asset restructuring plan.

Positive Deal

The deal with Shenzhen Metro is “neutral for Vanke, positive for management, relatively negative for minority investors,” according to Citigroup Inc analysts led by Hong Kong-based Oscar Choi. It’s a good opportunity to add projects in Shenzhen given the city’s land scarcity, Citigroup said.

Shenzhen Metro’s real estate assets are above metro stations “with good locations” and were acquired at relatively low land costs, Credit Suisse’s Du said. Shenzhen Metro, as a profitable rail transit builder, has strategic synergies with Vanke, the company said Sunday in a post to official Wechat Account.

The rare public spat with Baoneng, which replaced state-owned China Resources Co. as Vanke’s largest shareholder, drew closely held Anbang Insurance Group Co. into the fray. Anbang boosted its stake in the developer to more than 7 percent in a move welcomed by Vanke.

— With assistance by Emma Dong

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