Zheshang Bank Denies Financing Baoneng's Hostile Takeover Bid for Vanke
Yicai Global
/SOURCE : Yicai
Zheshang Bank Denies Financing Baoneng's Hostile Takeover Bid for Vanke

(Yicai Global) July 21 -- China Zheshang Bank Co. has denied funding Shenzhen Baoneng Investment Group Co.'s acquisition of shares in China Vanke Co., the target of a headline-grabbing hostile takeover bid.

The Hangzhou-based bank said it only provided priority funding for Shenzhen Jushenghua Industrial Development Co., a Baoneng subsidiary, to buy shares of Foresea Life Insurance Co.

The lender's rebuttal is the latest development in the protracted struggle for control of Vanke [SHE:000002; HK:02202], China's biggest real estate developer, which kicked off at the end of last year. On July 19, Vanke asked regulators to look into the legality of the financing instruments used by Baoneng, an insurance and investment giant that is Vanke's largest shareholder.

The very public tussle for control of the blue-chip company has been one of the biggest corporate news stories in China. 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 25.4 percent stake.

Zheshang Bank said at the onset of the takeover battle that its CNY13.29 billion (USD1.99 billion) subscription to Huafu Securities Co., a Baoneng unit, was to support Jushenghua's integration of its acquisition of unlisted financial equity, not to facilitate investment in the secondary stock market.

According to publicly available data, Baoneng only invested around CNY6.9 billion itself, buying up nearly 40 percent of Vanke's A-shares through CNY26 billion of financing from six banks. Baoneng paid CNY23 a share. Today the stock is trading under CNY17 a share. Based on integrated calculation, the actual leverage ratio was 4.2 times Vanke's equity.

Vanke's A-shares have dropped sharply since trading resumed for the first time in more than six months on July 4. Many of Baoneng's asset management plans in banner acquisitions face the prospect of dropping below the warning level, and will likely be compelled to close their positions.

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, Jushenghua and Foresea Life.

On June 26, Baoneng proposed convening 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 announced that the board had unanimously rejected the proposal.

The six banks that financed Baoneng are reportedly: China Construction Bank Corp. [SHA:601939; HK:0939], China Guangfa Bank Co., Ping An Bank Co. [SZA:000001], China Minsheng Bank Corp. [SHA:600016], Shanghai Pudong Development Bank Co. [SHA:600000], and Zheshang Bank.

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