Ally of Vanke Management Steps in as Largest Shareholder After Evergrande's Exit
Chen Shuzhen
/SOURCE : Yicai
Ally of Vanke Management Steps in as Largest Shareholder After Evergrande's Exit

(Yicai Global) June 12 -- The battle for control power of a major real estate company in China -- Vanke Co. [SHE:000002] is finally shaping a clearer course.

After China Evergrande Group [HK:03333] -- another major Vanke real estate rival -- transfers its Vanke shares to an ally of Vanke's management, Shenzhen Metro Group Co., the latter will become Vanke's largest shareholder.

Evergrande announced it would sell its 1.553 billion Vanke shares -- 14 percent of the total -- to Shenzhen Metro on June 9.

The consideration for the above deal is USD4.2 billion (CNY29 billion), equivalent to CNY19 per share, logging a loss of CNY7.1 billion as against the purchase price of CNY36.3 billion, per the announcement.

Though Evergrande's financial investment in Vanke ends with a loss of over CNY7 billion over the past year, the deal still greatly helps its ease its all-time high liability ratio, an industry insider opined.

Stop trading

This major-asset transfer halted trading of Vanke's A-shares on June 7, and its price closed at CNY20.9 June 6.

When the deal concludes, the latest major equity structure of Vanke will be as follows: Shenzhen Metro as the largest shareholder with its stake up to 29.4 percent, Shenzhen Baoneng Investment Group Co. and its agents -- whom Liu Shiyu - chairman of China Securities Regulatory Commission denounced as "barbarians" over their aggressive and borderline activities -- holding a 25.4 percent stake in total to fall to second-place, with Vanke's management to hold 7.12 percent, followed by Anbang Insurance Group Co. with 6.18 percent.

New largest shareholder Shenzhen Metro said it will support the strategic goals, and operation and management model Vanke management set, and will aid in changing the board of directors as per law.

The biggest uncertainty remaining in the battle's essential aftermath is Vanke's new board, and how its ultimate composition and the will of interests it represents will orient the firm's future development.

Who leads

After Evergrande withdraws from Vanke, Baoneng's attitude will become the most critical factor determining Vanke's new board. The focus of the game among the major shareholders will shift to whether Baoneng follows in Evergrande's footsteps or not, and how many seats it will seek if not.

With operations that stand out among domestic residential developers, Vanke has long been the largest real estate enterprise. Company equity is rather scattered, however, and its management holds less of a stake, and is thus at risk of losing its power to control external capital.

Baoneng and Anbang have greatly upped their holdings of Vanke shares in securities market since mid-2015, bringing material changes in the company's equity structure. Evergrande also joined in the clash of arms by lifting its stake to become Vanke's third-largest shareholder.

Losing control

At the same time, with chairman Wang Shi and president Yu Liang at the core, Vanke management has struggled to protect their controlling power in the company.

Then, Shenzhen Metro took over 1,689 million shares from China Resources (Holdings) Co. at the beginning of this year at a price of CNY22 per share to become second-largest shareholder. Shenzhen Metro is the real ally of company management.

Subsequently, China's industry watchdog strengthened regulation over the use of leveraged capital in the industry, clamping down on violations by Baoneng's financial arms. In the wake of this, new shareholders said they did not intend to control the conglomerate, which helped management ease the crisis of losing controlling power.

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Keywords: Equity Transfer , Vanke , China Evergrande , Shenzhen Metro Group , Baoneng , Anbang , Financial Regulation , Shareholder Meeting , Universal Life Insurance