Vanke 'ropes in govt help' to ward off biggest shareholder Baoneng

BattlebuildsupasShenzhencompanybecomesdeveloper'sbiggeststakeholder

TheconfrontationbetweenChinaVankeCoLtd,thecountry'slargestresidentialdeveloper,anditslargestshareholderBaonengGroupescalatedonMondayafternewsreportssuggestedthatVankemayhavesoughtgovernmentsupporttoresolvethecrisis.

InwhatVankecalleda"hostiletakeoverbid",Baoneng,arelativelyunknownandmuchsmallerShenzhen-basedprivateconglomerate,gainedsuddenprominenceafteritbecamethedeveloper'slargestshareholderbypurchasing22.45percentofVanke'ssharesonthepublicmarketthroughitsaffiliates.

TheincidentsparkedagreatdealofpublicattentionasitisanunprecedentedeventintheChinesemarketforsuchalargedevelopertohavebeentargetedbyasmallerandlow-profileprivategroupthathasmanagedtoleveragemassivecapitalestimatedat40billionyuan($6.17billion)tobidfortheformer'sstake.

VankeChairmanWangShisaidthecompanydidnotwelcomeBaoneng'smoveashesaiditwillharmVanke'sreputationandcredibility.Baonengrespondedbysayingthatitisalaw-abidingfirmanditbelievesinthe"powerofthemarket".

ChinesebusinessmagazineCaixinonMondaycitedsourcesclosetothematterassayingthatVankehasgainedsupportfromtheState-ownedassetregulatorandmajorinvestmentbanksincludingGoldmanSachsGroupIncforitsrestructuringplan,amovewhichispossiblyaimedatdilutingBaoneng'sownership.

BoththeState-ownedAssetsSupervisionandAdministrationCommissionandGoldmanSachsdeclinedtocommentonthematterwhencontactedbyChinaDaily.

Vanke'spreviouslargestshareholder－State-ownedconglomerateChinaResourcesCoLtd,whichownsabout15percentofthedeveloper'sshares,hasnotpubliclyrespondedtomediainquiries.

ItisunderstoodthatVankewilllikelyseeksupportfromChinaResourcesbyissuingadditionalsharesthroughprivateplacementandallowingtheState-ownedgrouptoinjectitspropertyassetsintoVanketodiluteBaoneng'sstake.

"OnelikelyoptionforVankeistosellsharesinHongKong,asitsHsharesaretradedatadiscounttoitsAshares.Andbyexpandingitssharebaseandmarketvalue,itcouldsubstantiallyreducethestakeheldbyexistingshareholderstoavoidatakeover,"saidXieHaoyu,apropertyanalystatHuataiSecuritiesCo.

ZhangJie,aprofessoratthecapitalresearchcenterofChinaUniversityofPoliticalScienceandLaw,saidthatthebiddingwarbetweenVankeandBaonengisamilestoneintheChinesecapitalmarketandcouldserveasawake-upcallforlistedcompaniesthatlackexperienceindealingwithhostiletakeovers.

Threemostlikelyoutcomes

・VankeissuesadditionalsharesthroughprivateplacementforassetinjectionfromChinaResourcestodiluteBaoneng'sownership.

・VankeasksforsupportfrominstitutionalinvestorsandfriendlycompaniestobuyitssharesonthepublicmarkettopreventBaonengfrombecomingthelargestshareholder.

・BaonengboostsitsholdingsinVanketomorethan30percentandbecomesthecontrollingshareholder.Vanke'scurrentmanagementwillfacetheriskofbeingremovedbyBaoneng.