Vanke’s $6.9 Billion Share-Sale Plan Opposed by Shareholder

  • Plan aims to make Shenzhen Metro biggest shareholder in Vanke
  • China Resources says proposal failed to get enough board votes

China Vanke Co. Chairman Wang Shi’s bid to fend off a takeover has been thrown into doubt after the property developer’s second-largest shareholder, China Resources (Holdings) Co., said the proposal failed to get enough votes from the board.

China Resources questioned the legality of the board’s resolution in a statement on its official WeChat account Saturday, saying Vanke’s 45.6 billion yuan ($6.9 billion) plan to buy assets from Shenzhen Metro by issuing new shares, which would make the subway builder its largest shareholder, needs the approval from two-thirds, or eight, of the 11 members. Shenzhen-based Vanke said on Friday its board voted 7-to-3 in favor of the plan after one director chose to abstain, citing a conflict of interest.

Wang Shi

Photographer: Lam Yik Fei/Bloomberg

The opposition from a long-term major shareholder adds uncertainty to Wang’s effort to counter little-known Baoneng Group, which overtook China Resources as the company’s largest shareholder last year in what Vanke management labeled as a “hostile takeover.” If the current proposal goes ahead, the shareholding of Baoneng’s units and related parties in mainland China’s largest listed property developer would be diluted to 19.27 percent, while Shenzhen Metro would own 20.65 percent, according to Friday’s exchange filing.

Having Shenzhen Metro as the largest shareholder fits Vanke’s long-term goal of developing properties alongside metro lines that are being expanded, Goldman Sachs Group Inc.’s Shanghai-based analysts led by Wang Yi wrote in a note dated Monday. It would “enable Vanke to adopt a ‘railway + property’ business model, whereby the company could seize property development opportunities accompanying the fast development of metro lines in China,” the analysts said. Goldman Sachs’s coverage of Vanke remains suspended.

Vanke’s mainland-listed A shares have been suspended since Dec. 18 pending a restructuring plan from the company. The Hong Kong-listed shares fell 2.7 percent to HK$17.04 as of 11:43 a.m. local time.

‘Protect’ Shareholders

“If Vanke doesn’t reconsider the problems in the restructuring proposal and submits the same plan for a vote at board or shareholder meetings in future, China Resources would continue to vote against it in order to protect the interests of all shareholders,” the state-owned conglomerate said in the statement.

Vanke has a low debt burden and can use either cash or debt to finance the deal and doesn’t need to sell new shares, said China Resources, which owns 15.24 percent of Vanke. The proposed price of 15.88 yuan per A share implies a discount of 24 percent to Vanke’s net assets, and the land being bought, which wouldn’t contribute to profit for the next two to three years, would dilute earnings, it said.

Independent Director

Zhang Liping, an independent director on Vanke’s board who’s currently employed by Blackstone Group, didn’t vote on the proposal because the two companies are in talks about a commercial property project, according to the exchange filing. Only members directly affiliated with the companies involved in the resolution being voted on -- in this case, Shenzhen Metro -- should be excluded from voting, China Resources said.

The three directors from China Resources voted against the deal, although the company agreed the assets being bought could benefit Vanke’s business, according to its statement. The proposal doesn’t give Vanke ownership in Shenzhen Metro itself and won’t secure cooperation opportunities in other projects with the subway builder, China Resources said. The land price also doesn’t include taxes, which would significantly push up eventual costs for Vanke, it said.

Vanke defended the proposal in a separate statement sent to Bloomberg News on Sunday, saying it expected the deal to bring “continuous quality project resources” in key Chinese cities at “reasonable” prices, and that becoming a major Vanke shareholder, was the only consideration Shenzhen Metro would accept.

The two projects being acquired were the “best two land sites in Shenzhen” -- a city where developers are finding it increasingly difficult to obtain land -- and would become an important source of profit for Vanke, board secretary Zhu Xu said in the statement.

New-home prices in Shenzhen, a southern business hub bordering Hong Kong, jumped 53 percent in May from a year earlier, the most among the 70 cities tracked by the government, according to National Bureau of Statistics data.

“Through this transaction, what Vanke is buying is not two land sites, but the future,” Vanke said in the statement, citing the words of an unidentified independent director.

— With assistance by Dingmin Zhang

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