Battle for China Vanke heats up as Evergrande raises stake

By Clare Jim and Donny Kwok

HONG KONG (Reuters) – A battle for control of China’s largest home builder heated up after the country’s No.2 player raised its stake in China Vanke to nearly 7%, sending Vanke stock higher with investors and analysts betting more share raids are in store.

The move by highly indebted but ambitious China Evergrande Group comes amid a rare public Chinese boardroom spat. Vanke is already fending off a potential bid from its biggest investor, financial firm Baoneng Group, which has built up a 25% stake despite the developer’s protests.

Employees walk past a logo of Vanke at its headquarters in Shenzhen, south China's Guangdong province, November 2, 2015. REUTERS/Tyrone Siu/File Photo -

Employees walk past a logo of Vanke at its headquarters in Shenzhen, south China’s Guangdong province, November 2, 2015. REUTERS/Tyrone Siu/File Photo –

In a filing late on Monday, Evergrande said it had paid 5.46 billion yuan ($823 million) for another 2.14% stake in Vanke, becoming its no. 3 investor. The stake increase came nearly two weeks after Evergrande surprised investors by buying 4.68% of Vanke for 9.1 billion yuan, citing the latter’s “strong results” as a reason for the investment.

Officials at Vanke, worth about $40 billion by market value, declined to comment on Evergrande’s latest move. Evergrande, which has a market capitalisation of about $10 billion and had total long-term debt twice that amount as of end-2015, declined to comment on whether it might increase its holding or seek representation on Vanke’s board.

“Evergrande will buy more; from its track record it wouldn’t stop at a 6 percent-plus stake,” said UOB Kay Hian analyst David Yang in Shanghai. “Getting involved in this (Vanke) battle will not do Evergrande much harm.”

Yang said he expected Evergrande to seek seats on Vanke’s board at the latter’s next annual shareholder meeting in March 2017.

In a report earlier this month, JP Morgan analysts wrote that Evergrande, which has a track record of hostile takeover attempts, hoped to exercise influence on Vanke.

Shares in both home builders rose on Tuesday after Evergrande disclosed a move that leaves only Baoneng and state-owned China Resources Group as bigger investors in Vanke.

Vanke’s Shenzhen-listed shares surged 7% to a record high, while its Hong Kong-listed shares rose more than 1 percent, outpacing a flat benchmark index. Evergrande rose 1 percent.

Wang Shi, Vanke’s chairman, has publicly opposed Baoneng’s moves in the past, urging regulators to investigate the funding of its purchases of Vanke shares. Baoneng has declined to comment on Vanke’s request.

Evergrande has spent over $4 billion snapping up shares in companies this year, including taking control of smaller rival China Calxon Group, and earlier this month ratings agency Moody’s said its first Vanke purchase was credit-negative.

Still, early this month it paid about $60 million to buy more of trading company Langfang Development Co Ltd, raising its stake to 15 percent.

($1 = 6.6359 Chinese yuan renminbi)

(Reporting by Clare Jim and Donny Kwok; Additional reporting by Umesh Desai; Editing by Anne Marie Roantree and Kenneth Maxwell)



Categories: Asia Unhedged, China

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