Developer acquires Shenzhen Metro unit for $6.94 bln in stock
Leading property developer China Vanke Co said that it will acquire a unit of Shenzhen Metro Group by issuing new shares, making the State-owned subway operator its largest shareholder.
The move has been strongly opposed by Vanke's current second-largest shareholder, China Resources Group.
Vanke said in a filing to the Shenzhen Stock Exchange Saturday that it will acquire Qianhai International Development Co, a subsidiary of Shenzhen Metro, which owns large-scale projects of metro facilities in Shenzhen, South China's Guangdong Province.
The acquisition cost is put at 45.6 billion yuan ($6.94 billion), to be paid for by an issue of new shares. Vanke will issue Shenzhen Metro about 2.87 billion A shares at 15.88 yuan each, according to the filing.
Shenzhen Metro will then hold 20.65 percent of Vanke's enlarged share capital, overtaking the 19.27 percent owned by Vanke's major shareholder Shenzhen-based private developer Baoneng Group.
The deal didn't win unanimous support from Vanke's board, with three "no" votes from its current second-largest shareholder China Resources Group, out of 10 total board seats, the filing noted. China Resources, a State-owned conglomerate, now holds a 15.24 percent stake in Vanke.
China Resources expressed strong dissatisfaction with Vanke's decision, saying that "the firm has not carefully considered the board's opinions," according to a statement China Resources released Saturday on its official WeChat account.
China Resources' directors are opposed to paying for the deal through a new share issue, said the statement. "The debt ratio of Vanke is one of the lowest in the domestic property sector … the company has large scope for debt financing … there is no need for the company to issue a large amount of shares that will dilute the equity stakes of its current shareholders."
China Resources said it will continue to vote "no" in the future if Vanke does not examine the issues in its restructuring plan and puts a similar plan forward for board votes.
The deal shows Vanke's determination to further advance its business via a model of combining metro operations with property management, said Wang Danqing, a partner at Beijing-based consultancy ACG.
"But the core point is that the company is trying to make some changes in its equity ownership," Wang told the Global Times on Sunday.
"The relationship between Vanke and China Resources is tense due to their conflicting interests, and the two will continue to stand on opposite sides in the future for sake of their own interests," Wang said, noting that the two companies will endeavor to find a balance and common ground via negotiations.
China Resources also has housing operations, and it had hoped to control Vanke to boost its operations, according to Wang.
The changes in Vanke's equity ownership are the fallout from the fight between Vanke's management and its largest shareholder over control of the company, which has been ongoing since 2015, experts noted.
"Vanke has chosen to buy Shenzhen Metro in a bid to fend off Baoneng in a battle for control," Song Ding, a Shenzhen-based market analyst at the China Development Institute, told the Global Times on Sunday.
In December 2015, Shenzhen-based Baoneng Group overtook China Resources as Vanke's largest shareholder, a move that Vanke's executives opposed.
Media reports have said that State asset regulators approved China Resources' purchase of Baoneng shares, but China Resources said those reports are "untrue and groundless," domestic news portal finance.qq.com reported Sunday.
"To surmount stiff competition in the domestic property market, Vanke is eyeing the deployment of its industries by joining hands with Shenzhen Metro, which is valued at more than 200 billion yuan," Song said.
Vanke announced on March 13 it will acquire Shenzhen Metro's property projects, mostly of which are above subway stations.
Vanke's shares in Hong Kong closed up 3.42 percent at HK$17.52 ($2.26) on Friday. Its Shenzhen-listed shares have been suspended since December 18, 2015, pending an asset restructuring.
