Strategic investment complicates firm's shareholder structure
Evergrande Group's strategic investment in China Vanke Co may cast a negative impact on Vanke's H shares, since the acquisition complicates Vanke's shareholder structure, financial analysts said on Friday.
Guangzhou-based developer Evergrande on Thursday announced in a filing to the Hong Kong Stock Exchange that it had brought more than 516 million of Vanke's A shares, a 4.68 percent stake, for 9.1 billion yuan ($1.4 billion), making it the fourth-largest shareholder in Vanke, after Baoneng Group, China Resources (Holdings) Co and Anbang Insurance Group.
Evergrande's share price on Friday in Hong Kong rose 5 percent to close at HK$5.41 (70 cents) while Vanke's H share price gained 1.61 percent to close at HK$18.9 the same day.
Other Hong Kong-listed property stocks led the share market gains on Friday, boosted by the UK's first interest rate cut since 2009 and other fiscal measures intended to bolster the UK economy. The Hang Seng Properties Index advanced 2.33 percent while the city's benchmark Hang Seng Index gained 1.4 percent with a market turnover of HK$54.5 billion.
"Evergrande is hoping to have an influence in Vanke, and we expect this will eventually turn into a strategic investment," said Ryan Li, an analyst at JPMorgan Chase & Co. "Evergrande has a track record of hostile takeover attempts."
Evergrande's Chairman Hui Ka Yan may continue to buy Vanke's A shares so that Evergrande can have some say in Vanke's management when the board re-elects directors in the second quarter of 2017.
Vanke's management is trying to fend off a hostile approach for control by its largest shareholder Baoneng, after the Shenzhen-based business conglomerate displaced China Resources as Vanke's largest shareholder in December.
"Hui's intentions may become clearer if Evergrande continues to accumulate Vanke's A shares to reach the 5 percent ownership threshold, when it could request a seat on the company's board of directors," said Hong Hao, head of research and chief strategist at BOCOM International Holdings Co.
