Thursday 28 Mar 2024
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HONG KONG (March 17): China Vanke said Shenzhen Metro would become its largest shareholder in terms of voting rights after a proxy agreement with its No. 3 shareholder, a move that gives Vanke management the upper hand in its power struggle with Baoneng Group.

The property giant has been at the centre of a complex battle for boardroom control — rare among listed firms in China — after the Baoneng financial conglomerate built up a 25% stake to become its largest shareholder and sought to oust management.

Vanke appeared to have won a key advantage early this year after white knight Shenzhen Metro, a state-backed firm, bought a 15.3% holding from China Resources Group, for some US$5.4 billion.

The new deal with No. 3 shareholder China Evergrande will further help management at the country's second-biggest homebuilder and Shenzhen Metro assert control, but it remains to be seen if Baoneng will back down.

A key focus will be the make-up of Vanke's board as the tenure of current members is due to end this month. Vanke has yet to set a board meeting to elect new directors, although the current board will meet on March 24 to approve annual results.

"We think Baoneng is still interested to be represented in Vanke's board but the next question is whether it will get all the three seats as suggested by its stake," Macquarie analyst Wilson Ho said in a research note.

Baoneng's nominations could be opposed by other shareholders, market participants have said.

Under the deal with Evergrande, the Shenzhen Metro will have 29.38% of voting rights in Vanke, as well as proposal rights and rights to participate in general meetings.

Shenzhen Metro holds 15.31% of the nation's second largest homebuilder, while Evergrande, China's biggest property developer holds 14.07%.

The deal is only for one year but Evergrande is likely to sell its stake to Shenzhen Metro when its lock-up period expires in May, said Macquarie's Ho, noting that Evergrande has already listed the holding as 'available for sale' assets in its financial statements.

Evergrande, Vanke's biggest rival, declined comment on why it had entered into the proxy deal with Shenzhen Metro. It has never explained why it built up its holding last year.

Baoneng officials were not available for comment.

The financial conglomerate suffered a blow last month after China's insurance regulator banned Yao Zhenhua, chairman of Foresea Life, an unit Baoneng used to purchase Vanke shares, from the insurance business for 10 years, citing violations in its use of insurance funds.

Vanke Shenzen-listed shares climbed 2% on Friday while its Hong Kong shares stock was trading 0.6% lower.

Its bonds were trading slighter higher.

"While there may not be any imminent impact, we would expect that creditors would prefer a strong shareholder such as Shenzhen Metro over highly-leveraged Evergrande," MUFG Securities strategist Rick Mattila said in a note to clients.

 

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