By Dominique Fong
BEIJING-- China Vanke Co., one of the world's largest home builders, is picking up a crucial ally in its long-running effort to fend off a possible hostile takeover.
Subway operator Shenzhen Metro Group Co. said late Thursday that it will purchase the entire 15.3% interest of Vanke's No. 2 shareholder, China Resources Group , for 37.2 billion yuan ($5.4 billion).
Analysts saw the Shenzhen Metro share purchase as pivotal in the protracted corporate drama that has transfixed China's business community in the year-plus since upstart insurance-property conglomerate Baoneng Group became Vanke's biggest shareholder.
With China Resources out of the picture, Vanke's celebrity chairman, Wang Shi, may now be able to pursue an asset-swap deal that could position Shenzhen Metro as the developer's largest shareholder, displacing Baoneng. China Resources, a state-owned conglomerate, opposed the asset-swap plan, proposed by Vanke last summer.
"Shenzhen Metro was always the entity that Vanke management wanted to counter Baoneng," said Phillip Zhong, a Morningstar analyst.
China Vanke's shares were last up 5.6% in morning trading in Hong Kong, while its Shenzhen-listed shares rose 7%.
Vanke is seen as a crown jewel in China's business world, known as a well-run developer that produces quality projects. China Vanke reported a 10.4% increase in net profit for the six months ending June compared with the same period a year earlier. Sales for the period hit 190 billion yuan, up 73% from the year before.
China Vanke said in a statement late Thursday that it was too early to call Shenzhen Metro's share purchase an effective solution since the situation remains complex.
A Baoneng representative couldn't be immediately reached for comment.
Under the asset-swap plan, Vanke would issue new shares to Shenzhen Metro in exchange for real-estate assets, effectively diluting Baoneng's stake.
Vanke can build real-estate projects on top of subway stations in Shenzhen, a technology and business hub where available land parcels have become scarce as developers snapped up land deals at high premiums last year.
With its share purchase, Shenzhen Metro will take over the three Vanke board seats previously held by China Resources. Baoneng, which has none but can nominate its own representative, had tried to oust the entire board last summer but failed. Vanke has said it will reappoint its board in March.
Even before Thursday's share purchase, Baoneng's room for maneuver seemed to be narrowing. Regulators have taken action in recent weeks against a number of insurance companies, among them the insurance units of Baoneng and China Evergrande Group, Vanke's third-largest shareholder with a 14.07% stake, part of a wave of regulation triggered by insurers plowing funds raised from policy sales into share purchases.
Evergrande also said in a Friday exchange filing that it doesn't intend to acquire more Vanke shares. Evergrande declined to comment on why it won't buy more shares.
"There's no evidence that Evergrande is going to be aligned with Baoneng, so in that sense, Baoneng will back down from this fight," said Mr. Zhong.
Write to Dominique Fong at Dominique.Fong@wsj.com
(END) Dow Jones Newswires
January 13, 2017 01:18 ET (06:18 GMT)
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