Vanke Under Mounting Pressure as Baoneng Seeks Board Reshuffle

  • Baoneng seeks EGM to remove 10 directors from 11-member board
  • Plan for $6.9 billion stock sale is at center of dispute

China Vanke Co., the developer planning a reorganization to fend off a takeover, faces potential management changes after its biggest shareholder asked for an extraordinary general meeting aimed at removing almost all board members.

Vanke received the “requisition notice” for an EGM from Shenzhen Jushenghua Co. and Foresea Life Insurance Co., units of Baoneng Group, on June 24, according to a Sunday filing to the Shenzhen Stock Exchange. The board of the developer has 10 days from receiving the document to decide on whether to convene a shareholder meeting, Vanke said.

The Shenzhen-based developer plans a $6.9 billion stock sale to Shenzhen Metro Group that would make the southern Chinese city’s train operator the biggest shareholder in Vanke. Baoneng and China Resources (Holdings) Co., Vanke’s second-largest shareholder, have both said they oppose the share-sale plan.

Vanke has been embroiled in a tussle for control since last year, when Baoneng, until then an obscure conglomerate, displaced China Resources as the developer’s largest stakeholder. At the time, Vanke’s management labeled it a “hostile takeover,” and the Shenzhen Metro transaction was widely viewed by analysts as a way to dilute Baoneng’s ownership.

Shares of Vanke traded in Hong Kong plunged 3.4 percent to HK$16.14, the lowest in more than four months, as of 1:19 p.m. local time, bringing the year-to-date decline to almost 30 percent.

Board Reorganization

Baoneng aims to “reorganize the board” earlier than scheduled, David Yang, a Shanghai-based analyst at UOB Kay Hian Investment Co., said. The current board of directors, which has three members from Vanke, including Chairman Wang Shi and President Yu Liang, has a tenure until March 2017, according to the developer’s filing earlier. Baoneng, which bought into a 23.52 percent holding in Vanke through units last year, currently has no representative on the 11-member board.

As a shareholder with more than a 10 percent stake in Vanke, Baoneng is entitled to convene an extraordinary shareholder meeting, even if Vanke’s board of directors and board of supervisors reject the requisition, Yang said. Board members will be removed if more than half of shareholders attending vote for it, Yang said.

Baoneng Opposition

Vanke’s share sale to Shenzhen Metro in return for assets the developer plans to use for property projects faces almost-certain rejection in its current form after the Baoneng units and China Resources, which hold a combined 39.5 percent of Vanke, threatened to derail the deal.

Vanke, the largest traded developer in mainland China, has said that completing the deal is a “life-or-death” matter as the firm seeks new ways to expand amid surging land costs.

Shenzhen Jushenghua and Foresea Life Insurance have said they are opposed to Vanke’s planned deal because it would dilute the interests of existing shareholders. Vanke’s board isn’t representing holders’ interests in a balanced way and the company is controlled by “insiders,” the two units acting in concert have said.

Besides the 10 directors, two supervisors at the company are targeted for removal in the notice from the Baoneng units.

Potential Alliance

A potential deal between China Resources and Baoneng added to the uncertainty of the reorganization. Wang Shi, Vanke’s chairman and co-founder, wrote in a post on his Wechat account Sunday that China Resources and Baoneng have formed in alliance, the 21st Century Business Herald reported.

Vanke, in an internal employee letter late Sunday, said it was facing mounting pressure, as the ownership tussle prompted banks and rating companies to review its credit risks. Some projects and contracts are facing the risk of termination, while some external partners are negotiating terms amid concerns about business prospects, according to the internal letter. Vanke denied any control by “insiders.”

— With assistance by Emma Dong

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