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China Vanke drops white knight rail deal

The barbarians at the gate have claimed a victory in the battle for control over China Vanke, the country’s largest retail property developer, after the company called off a deal to take on a new majority shareholder.

Shares in Vanke fell more than 6 per cent to HK$18.22 in Hong Kong on Monday morning after the home builder said on Sunday that it had dropped plans to sell some $7bn worth of shares to enlist Shenzhen Metro Group as a white knight in exchange for property assets.

Vanke found itself the target of China’s first high-profile hostile takeover nearly a year ago after little-known Baoneng Insurance increased its holdings in the developer to about 24 per cent.

The dispute has become China’s most-watched corporate battle, spilling onto the public stage with the chairmen of Vanke and Baoneng slinging insults at one another in domestic media. China Evergrande , the country’s second-largest property group, also joined the fray, boosting its stake in Vanke to a level that would permit it to nominate a board member.

In an effort to bolster its defences, Vanke in June announced that it had agreed a deal for a stake in Shenzhen Metro that would install the urban transit company as its largest shareholder — a plan attacked by Baoneng and state-run China Resources, another major shareholder, who opposed having their holdings diluted.

In a stock exchange filing late on Sunday, Vanke said it had called off the deal with Shenzhen Metro after “certain major shareholders of the company had publicly expressed their varying opinions on the transaction proposal”.

Ken He, an analyst at DBS Vickers in Shanghai, said the cancellation of the deal was clearly negative for Vanke but that it was unclear which shareholder would benefit the most from announcement. “There are too many key shareholders and all have different views on this transaction,” he said.

The fight for control has taken a toll on Vanke’s finances. In August, the company disclosed that the dispute had resulted in delay or cancellation of 31 projects this year as its management was called into question. Banks have also curtailed Vanke’s access to loans, and global rating agencies have warned of an impact on the group’s corporate rating.

While privately held Baoneng has been the primary agitator, with Baoneng and China Resources remaining Vanke’s two largest shareholders, rival property developer Evergrande has also become a key stakeholder.

As of late last month, Evergrande had bought Rmb36.8bn ($5.3bn) worth of Vanke shares, increasing its stake to 14 per cent. However, at the weekend, a senior Evergrande executive told Chinese media the group had no intention of seizing control of Vanke.

Anbang Insurance, another acquisitive Chinese group, also has a substantial holding in Vanke.

However, Baoneng has faced some setbacks of its own in recent weeks. The China Insurance Regulatory Commission in early December barred Baoneng’s unit Foresea Life Insurance from issuing universal insurance policies — high-risk, high-return products often used to fund corporate deals.

The products come under regulatory scrutiny because they are essentially wealth management products rather than traditional protection-style insurance policies.

The country’s securities regulator has also denounced companies making highly leveraged takeovers as “barbarians” and “robbers”.

Via FT