Credit Suisse, Goldman Cut Vanke's Target Share Prices Amid Protracted Takeover Battle
Yicai Global
/SOURCE : Yicai
Credit Suisse, Goldman Cut Vanke's Target Share Prices Amid Protracted Takeover Battle

(Yicai Global) July 14 -- Credit Suisse and Goldman Sachs are among financial companies that have lowered their target prices for shares of China Vanke Co. as the battle for control of the country's biggest real estate developer drags on sending its stock into a swoon.

Vanke's Shenzhen-listed shares [SHE:000002] have plunged 25 percent since they began trading again on July 4 after a more than six months suspension. Two days ago, they fell to a new low of CNY17.56 (USD2.63) a share.

That same day Credit Suisse Group [NYSE:CS] cut Vanke's A-shares target to CNY10.10 from CNY20.80 and its Hong Kong-listed stock [HKG:02202] to HKD12.10 from HKD25.40, citing the uncertainty over the hostile takeover bid. Goldman Sachs Group Inc. [NYSE:GS] had already said Vanke's A-shares were overvalued and issued a 'sell' rating with a 12-month target price of CNY15.60.

The very public tussle for control of the blue-chip company has been one of the biggest corporate news stories in China as Shenzhen-based Vanke tries to thwart a hostile takeover bid from Shenzhen Baoneng Investment Group Co., an insurance and investment giant. Vanke Chairman Wang Shi has described Baoneng's share-buying spree in the secondary market as an act of "barbarians at the gates." Baoneng has acquired a 20 percent stake.

Vanke announced a plan on June 17 to issue 2.87 billion A-shares to Shenzhen Metro Group Co., making the city's subway operator its majority shareholder and diluting the equity of existing stockholders including Baoneng. Nine days later Baoneng retaliated with a proposal to convene an extraordinary shareholders' meeting to demand dismissal of 10 out of 11 members of the board of directors, including Mr. Wang. On July 3, Vanke said the board had unanimously rejected that proposal.

Credit Suisse has also cut its forecasts for Vanke's earnings by 10.3 percent, 17.8 percent and 22.7 percent for the three years from 2016. It said the company's sales-volume-oriented operations would inevitably lead to narrower gross margins.

The headline-grabbing nature of the power struggle at Vanke has had local and overseas credit ratings agencies also watching developments closely, with Standard & Poor's and Moody's warning of possible downgrades. S&P has made clear that Baoneng's bid to remove Vanke's senior management could affect the developer's credit rating.

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