Vanke Takeover Case: Baoneng raises stake

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July 6, 2016 8:18 am

Baoneng raises stake in Vanke with $223m sneak attack

China Vanke President Yu Liang attends a news conference following the company's annual results in Hong Kong, China March 14, 2016. REUTERS/Bobby Yip/File Photo©Reuters

Baoneng Group, the once-obscure property and insurance conglomerate, executed a daring raid on China Vanke in the final minutes of trading on Tuesday in the latest twist in the battle for control of China’s largest residential developer.

Continuing to nudge the group’s stake higher, Baoneng affiliates bought Shenzhen-listed shares in Vanke worth 0.682 per cent of the company, Vanke said in a stock exchange filing. Intraday trading records show a cluster of buying in the final minutes of trade, with the day’s final transaction a single order worth Rmb911m ($136m).

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On Wednesday, Vanke’s Hong Kong-traded shares rose as much as 5.7 per cent in response to the developer’s disclosure that affiliates of privately owned Baoneng had aggressively raised their holdings.

Baoneng’s purchases on Tuesday raised the group’s total stake in Vanke to 24.972 per cent. Once Baoneng hits the 25 per cent threshold, regulations require it to file a disclosure and halt buying or selling of Vanke shares for at least two days.

Baoneng’s latest move showcased the company’s financial muscle: based on the closing price in Shenzhen, the group’s stakebuilding on Tuesday implies a total one-day investment of Rmb1.5bn ($223m).

The timing also showed considerable savvy. Baoneng made its purchases on a day when Vanke’s Shenzhen shares fell by the maximum 10 per cent daily limit for a second consecutive day. By waiting until the end of the trading session, Baoneng was able to take advantage of a deep pool of sell orders accumulated over the previous two days, ensuring its sudden buying would not push up the price, traders said.

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“From a technical trading standpoint, It isn’t all that impressive. The main thing is they’ve got so much money,” said a hedge fund manager in China who previously worked at a major brokerage.

Before Monday, trading in Vanke’s Shenzhen shares had been halted since December 18 as chairman Wang Shi plotted a restructuring deal aimed at fending off Baoneng’s bid for control. Analysts said this week’s tumble was largely a catch-up move. An index of mainland-listed property developers has fallen 19 per cent over the same timeframe.

Vanke’s Shenzhen shares were down another 2 per cent on Wednesday afternoon.

Its Hong Kong-listed shares were up 0.5 per cent by midday, extending a combined 8 per cent gain over Monday and Tuesday.

Even after the recent decline, Vanke’s Shenzhen shares are still priced at a 36 per cent premium to those in Hong Kong. More than 90 per cent of Vanke’s outstanding shares trade in Shenzhen.

In addition, Baoneng affiliates are planning to sell up to Rmb28bn in fresh capital by selling bonds on the Shenzhen Stock Exchange, according to recent filings. Market observers suspect the group may use the money for further Vanke share purchases.

Twitter: @gabewildau

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