China's Largest Property Developer Faces Hostile Takeover

Unusual for China, China Vanke's largest shareholder is now its antagonist.
By Alex McMillan ,

The world's largest property developer is under attack.

In a highly unusual move in China, China Vanke, which is listed in both Hong Kong (HK:2202) and Shenzhen (000002), is subject to a hostile takeover attempt. Although such an effort is almost unheard of in China, its antagonist is now its largest shareholder.

The Baoneng Group bought a large stake in Vanke in the second half of 2015, and now owns around a quarter of the company. But it is a little-known company that surfaced only with this bid.

The stock had been suspended for six months in China, but was released on Monday. The China listing fell 10%, the maximum limit in a Chinese trading day, when the shares resumed trading. In Hong Kong, there was an immediate leap, but the shares have returned to their level from last October.

China Vanke is unusual in that it has no state-sponsored backing and is also not owned by one tycoon. It elected in the middle of June to offer shares to state-owned subway operator Shenzhen Metro Group as an investor, in a deal worth an estimated 45.6 billion yuan ($6.8 billion).

The company chose to issue to Shenzhen Metro 2.87 billion shares at 15.88 yuan each, which at the time was a 35% discount to its shares.

The idea is that Vanke will develop property above Shenzhen Metro's stations. The deal will give Shenzhen Metro a stake of around 20% in the property developer.

But Shenzhen Metro is still being outdone by the company's opponent. DBS Vickers Securities and Deutsche Bank have told investors to sell their investments in Vanke, according to The Wall Street Journal, indicating that Vanke's shares and U.S. dollar bonds have yet to price in downside risks.

Watch this space!

Editor's Note: This article was originally published at 8 a.m. EDT on Real Money on July 5.

At the time of publication, Alex Frew McMillan had no positions in the stocks mentioned.

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