简体中文
At the end of March 1994, rising Shenzhen-listed property firm Vanke had the first taste of a hostile bid for management control by a group of rebel shareholders, heralding a much bigger and messier fight 22 years later.
State-run brokerage Junan Securities mounted a rare and public fight for control by suggesting shareholders back a restructure of Vanke’s business and management team.
Founder Wang Shi put down the shareholder rebellion in less than a week by talking the rebels out of the takeover attempt. He uncovered evidence of illicit insider trading by Junan, which prompted an official investigation and forced the brokerage to back down. Vanke's Chairman Wang Shi in 2014. Photo: Reuters
But Wang did not appear to take the lesson to heart. He went on to build Vanke into the world’s biggest home builder by sales but never bothered to consolidate his control. Instead, he donated his shares to charity, believing the largest shareholders would not interfere in management of a well-run, successful company.
So in early July last year when little-known private insurer Baoneng revealed it had 5 per cent of Vanke, Wang’s antenna was up but he failed to take any immediate action. That was still apparently the case even after Baoneng’s stake grew to more than 10 per cent late in the month, when Wang told Baoneng’s Yao Zhenhua his investment was not welcomed.
By mid-December when Vanke finally mounted a public defence and had its share trading suspended, Baoneng’s ownership had hit 24.26 per cent, making it the largest stakeholder. But even then, Wang did not line up a “white knight” to support him until March, when Shenzhen Metro, backed by the city government, entered the fray.
Accusations from both sides have become increasingly acrimonious and insulting. Wang reportedly denounced Baoneng as “barbarians”, alluding to the 1989 book Barbarians at the Gate that chronicled the battle for RJR Nabisco led by private-equity firm KKR. Wang later reportedly denied using the phrase.
The driving force behind Baoneng's assault on Vanke, Shenzhen tycoon Yao Zhenhua. Photo: SCMP
The unprecedented battle for one of the country’s best known companies has captivated not only the business world but also ordinary mainlanders.
The fight has become much bigger than a simple hostile takeover story. Many see it as a landmark case of taking stock of the country’s overall corporate governance, its capital markets, and its securities regulatory regime. It has also become a major social issue and an increasingly political one as local authorities take a role. Based in Shenzhen, Vanke has secured strong support from local authorities, while Yao, who hails from near Chaozhou and Shantou, has reportedly lined up support from local officials and other tycoons.
So far, both sides have dug in their heels, as their proxies leak lurid details and inside information to discredit the other. This has raised concerns that the final arbiters will be the top leadership in Beijing as representatives from both sides feverishly work their connections to the corridors of power.
That’s why the regulators’ role and thinking have become more important. After Vanke made claims of irregularities in Baoneng’s highly-leveraged fundraising, government auditors and at least three regulators spent three months investigating but found no major breach of regulations.
Little more than one week ago, both the securities and insurance regulators condemned Vanke’s management team and Baoneng, urging them to resolve the disagreement.
The insurance regulator particularly cautioned insurance companies against becoming a financing platform like an “ATM” for major shareholders.
But the equal blame levied on both sides by regulators failed to clarify the mess. In particular, they failed to address widespread speculation that Baoneng had colluded with Vanke’s second-largest shareholder, state-owned China Resources Group.
Regulators are now under pressure to take a deeper look at this issue. According to media reports, China Resources had a policy of not interfering in Vanke after it became Vanke’s largest shareholder with a roughly 15 per cent stake in 2000. That was until Fu Yuning became chairman in 2014. Along with Baoneng, China Resources voted down Wang’s “white knight” offer over fears its stake would be diluted. But there has been speculation China Resources secretly intended to effectively control Vanke by overhauling its management team, hence its decision to keep out the “white knight”. That implied both companies worked together to keep the hostile bid alive without publicly disclosing their intention, which breached regulations. Both firms have repeatedly denied collusion.
China Resources chief Fu Yuning has been thrust into the spotlight after the company was caught up in the power struggle with Vanke. Photo: SCMP Pictures
To clear the persistent rumours, a deeper investigation by the regulators is warranted.
Moreover, regulators should give priority to protecting a successful and well-run company like Vanke and its admired management team, and the long-term benefits of all shareholders, big or small.
This has become an international norm when it comes to resolving the conflicts arising from hostile takeovers.
Public opinion now seems tilted towards nudging Vanke, Baoneng and China Resources to settle through a compromise, but the acrimonious battle probably means it is very difficult for the major players to reconcile with the current shareholding structure.
To save Vanke from disintegration, a better alternative is to encourage another white knight to enter the game to take over the stake from either Baoneng or China Resources. Wang’s previous rescue plan involving Shenzhen Metro swapping its land for a stake was convoluted, making it difficult to implement and bring tangible benefits to existing shareholders. But forming a new conglomerate comprised of reputable investors at home and abroad could be given a better reception if it raised enough cash to buy out Baoneng or China Resources.
Even more importantly, no matter how the battle ends, it highlights critical flaws in China’s fragmented regulatory regime, which has inadvertently aided the rise of shadow banking threatening the country’s entire financial system.
First of all, the latest saga shows that the rise of internet banking and wealth investment plans by insurance companies has rendered the existing regime based on industries increasingly wanting. As the regulators look after only their own turfs and effective intra-department communications is lacking, the three regulators in charge of banking, insurance, and securities launched their own investigations, and came to their own conclusions without enough cross-referencing.
There have been long-discussed plans to merge those regulators into a super-regulator to close loopholes, but the leadership has been slow to make it happen due to opposition from vested interest groups.
A recent spate of collapses of asset management and wealth management plans (known as AMPs and WMPs) should provide more impetus for decisive action. Baoneng reportedly used 26 billion yuan of such instruments to partly finance purchase of Vanke shares.
The mainland leadership has always played down the role of shadow banking, but the popular AMPs and WMPs are clearly state-sanctioned shadow banking techniques which pose significant risks for the entire banking system.
The fact that JPMorgan analysts estimated that AMP funds, which expose banks to fluctuations of the stock markets, stood at 32 trillion yuan at the end of March, flagged a clear red light for the authorities.
It’s time the regulators merged.
(SOUTH CHINA MORNING POST)
