Tag Archives: Baoneng

China Vanke Shoots For New Board, No Barbarians Allowed

Embattled China Vanke, hk 2202, has finally set a meeting to vote for a new Board, the current term having expired in March of 2017.Vanke Board

Source: Hk Filings, latest

Out: Wang Shi, Vanke founder, China Re Representatives & Blackstone. In: SZMC with equal representation to Vanke.  The board also appears to have some new diversity with non-related representatives.

What’s Missing: Baoneng, Anbang.

The major reason for the delay in the new vote was to ensure Vanke executives maintain control, or at least split it with an entity of their choosing, despite their minority ownership interests.  They’ve been aided in their quest from outside sources.

  • China Re, which owned 15.3%, agreed to transfer them to Shenzhen Metro, SZMC.
  • China Evergrande, 3333 hk, a competing developer which had been stockpiling shares, volunteered transferring its voting rights to SZMC.
  • Evergrande officially sold the shares, at a loss to its original cost, to SZMC.  (No, Evergrande isn’t a charity – they are pursuing a back-door listing in Shenzhen which will very possibly be aided by this gesture).
  • Other heavy owner & tagged a barbarian, Baoneng, was prohibited from selling certain insurance products and its Chairman was prohibited from insurance for 10 years.
  • Vanke started a lawsuit in February, 2017, to invalidate Baoneng’s shares based on its use of leveraged products to acquire them.

Despite all these visible moves, the fact remains that Baoneng still holds 25.4% of the company’s shares and would be assumed to have a legitimate reason to expect Board representation.  The executives from Vanke’s side own a minor percentage of shares. Another insurance company, Anbang, also owns a significant amount of shares.

Baoneng Owner

Source: HK filings

The June Meeting, Friday the 30th of June, should be an interesting one.  Although the stock has been rising on the news, it’s still too early to know if the proposal will get the 2/3 majority needed.

 

 

 

 

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China Vanke Reveals Evergrande Investment Details

Vanke Ever Stock

China Vanke,  2202 HK, admitted that fellow developer China Evergrande Group, 3333 HK,    bought a large number of  A shares, vaulting it ahead of the last count of Anbang Insurance shares.  The ownership is complicated, with Vanke providing ownership  details today.

Vanke Evergrande

This adds some interest to the takeover battle with Baoneng, currently with a majority interest in China Vanke.   Baoneng surpassed China Resources’ ownership via multiple additions in 2016.  Investment vehicles included asset management plans which have been targeted by Vanke Chairman Wang Shi, 65, as having an unhealthy impact on the Chinese economy.  Once again, the investment vehicles in A shares are complicated.

Vanke Baoneng

Source: Annual Report

The other significant owners are China Resources,  Anbang Insurance and Guosen Securities through an investment linked to an asset management plan linked to Industrial and Commercial Bank of China – per the last annual report of China Vanke.

Vanke China Re

The only shareholder with Board seats in this group is China Resources, with 3 votes out of the 11 total.  The other shares are owned by the directors and one by a  Blackstone affiliate which has an independent director on the Board.  Baoneng has attempted to get seats through a board coup but has so far been defeated.

Evergrande has stated the buy was purely an investment in one of the largest developers in China with strong results.  Evergrande has been criticized by Moody’s for this and other investments due to its high leverage.  The battle shall continue between Vanke’s Wang Shi, 65, with only a .069% interest in the company he founded and 46 year old Baoneng founder Yao Zhenhua and now 56 year old Hui Ka-yan, who owns over 73% of Evergrande.  As a major competitor of China Vanke, it’s doubtful that Evergrande will support the embattled Vanke chairman. Evergrande’s multiple, influential bankers will be watching.

Evergrande Bankers

For earlier reports on this conflict, read here.

Source, Annual Report

China Vanke Points the Finger at High Risk Baoneng Ventures While Anbang Investor Embraces Risk

Vanke FingersAs China Vanke, 2201 HK, 000002 SH, continues to fight corporate raider Baoneng, it’s latest charge is that Baoneng has raised the money to increase its stake to 25% was done with dangerous disregard to risk.  Ironically, Anbang, a 4.6% owner in China Vanke,  has recently shown the same criminal disregard to risk, as its premiums sold increased by almost 5 x in June from the prior year.  Anbang is the mysterious, multi-billion dollar company that tried to buy Starwood, HOT, for $14 billion. It was able to increase those premiums in June by increasing sales of high-yield hybrid policies increasing by 16x.  If the reported guaranteed rate of 4.5% is correct, risk is blatant when the official deposit rate maximum in China is just 1.5% and the local stock market returns have been paltry, if any, with the Hang Seng up only .36% year to date and the Shanghai Comp down 14.76%.

Vanke is obviously more concerned with Baoneng’s holdings, reported at 25% on July 6, 2016 after A shares resumed trading on July 4, 2016 and Baoneng added 78.4 million shares.

This saga is far from over as the Chairman of one of the largest developer’s in the world, Wang Shi, continues to fight to maintain control of the China Vanke he founded in the 1990s.

In case you missed it, as Baoneng, upped its ownership in Vanke, Vanke first suspended its A shares to “consider a restructure”, and then tried to sneak through a private share issue to the SOE Shenzhen Metro.  The grounds for the potentially massive share issue to raise between 40 and 60 million yuan, was that Vanke desperately needed the land Shenzhen Metro was sitting on, mainly close to or connected with its metro system.  Once this issuance went through, Baoneng would lose its prominence as a majority shareholder and be replaced by Shenzhen Metro as the largest shareholder.  Vanke may have succeeded since Baoneng had no Board presence but was thwarted when China Re, which had 3 votes, balked at losing its percentage interest.  On top of that, when Vanke caved and asked for a vote, one member abstained, a Blackstone member, claiming he had an interest in the outcome since Vanke was negotiating a purchase from Blackstone.  Without that vote, the approval of the majority vote was protested by China Re, claiming that the abstention meant there was less than the required 2/3 majority.

Thankfully, the public isn’t too affected since Vanke managed to get a waiver on the 25% rule to 10%, (rules are meant to be broken), but admits that the new proposal could drop the float to below that.  Based on the proposal and the last reported share holdings, it definitely will drop it.

Vanke Proposal

Meanwhile, despite the fact that Vanke is one of China’s largest developers, with projects dominating the 1st and 2nd tier cities, its stock has suffered more than the indexes for both the Hong Kong and Shenzhen Exchanges.  (12/18/15 was the date at which the A-shares were halted.  They resumed trading on July 6, 2016, despite the fact that the restructure still wasn’t concluded.)

Vanke stock.PNG

Even the Shenzhen exchange wasn’t happy with the deal and wrote Vanke a letter with 7 problems.  Vanke wrote back with the synopsis as follows: 7/4/2016

1) Re: question on the reasoning for abstention – Vanke stated that conflict of interest which is based on the fact that deal Blackstone is working on would be affected by outcome of vote.

2) Re: question of Independent Director’s Independence: Rebuts that the Indep Director is independent, Vanke states that he is independent per the rules of the Shenzhen stock exchange.

Although Blackstone shares some interests with Vanke, states that these interests are below the threshold & therefore enable the director to be classified as independent.

3) Rebuts question on lack of 2/3 majority required with the abstention. Claims that they had enough members voting without the abstaining member.Claims they needed only 50% to attend, then 2/3 of those attending to pass. 10 out of 11 voted, with 7 voting yes.

Free float under Approved Minimum & Remedy

2) Admits the free float will most likely be below the 10% (standard was 25% but they got a waiver for 10%). Based on pre-existing ownership, free-float will definitely drop below – from 11.91% to 9.45%.  Company considers the .55% deficiency to be immaterial. Company has made no plans to rectify, will act once it happens – could issue more H shares.

Huge Difference between original Capital Contribution of Assets being Bought and appraised value.

3) Deal Value – Claims that value is reasonable due to sign. Land price appreciation since 2012. Since 2012, Shenzhen land price per GFA have increased by 354% while Nanshan prices have increased by 284%. In contrast, the value of Qianhai hub increased by 123% while Antuoshan increased by 44.7%

State of Development of Parcels

4) Explain where the development process, approvals obtained, is on the assets. Early progress, no construction to date, need environmental impact, etc.

Profitability

5) Notes that there has been negative to minimal profits for assets acquired The land injection was made in 2016 – development will eventually make it profitable.

Avg. Trading Price Justification

6)Rule 45 – price can’t be less than 90% of market reference price. Market reference price based on average trading of 20 days, 60 days or 120 days prior to announcement of resolutions of acquisitions. The company justified the price of 15.88 rmb/share stating that it was more than 90% of the 60 day average – prior to the suspension. This price was also supported by historical p/e, & price to net asset value. Based on history – states that the projected price is about 93% of avg.

Dilution of EPS

7) Admits that it will take time for assets to be profitable so there will most likely be a dilution of eps in the “short term”.  Both are in early stages, minimum approvals to date & no construction started.

Where are they now?  The latest filing, 7/21/2016, states that the Blacktone deal did go through, with China Vanke setting up a JV which would own 96% of the properties, at a cost to Vanke of RMB 3,889 million, about $582 million US. Otherwise, the last filing on July 18, 2016 regarding the restructure noted there was nothing new to report, with no approval yet from the State owned assets and Supervisory Boards, the Vanke Board and the CSRC.

In case you were wondering: What are the Baoneng Entities?

Although Baoneng has increased its ownership since the annual report, at the annual, the following entities were listed with their shares, all related to Baoneng:

Baoneng Related

 

 

 

 

 

 

China Vanke Angers Shareholder: Pits SOE against SOE

 

vanke share sale

I recently showed the potential impact of the proposed share sale by State-owned China Vanke, HK 2202 to State-owned Shenzhen Metro for $6.1 to $9.2 US Billion.  New quotes from a state-owned, majority holder indicate this deal is far from done.

The MOU regarding the sale was a vague proposal to raise a wide amount from 40 to 60 Billion rmb published in a HK filing on 3/12/16 with promises of concrete details on 3/15/16. Those details have yet to materialize.  The only published Hong Kong filings were on the 3/17/16 annual meeting with a note that the A shares would continue to be suspended.  This meeting followed an online meeting, 3/15/16, the details of which haven’t been published on the Hong Kong Exchange.

Although China Vanke published results annual results on 3/13/16, nothing was mentioned of the MOU and its potential impact or the continued A share suspension, now in its 4th month. The annual report included a lot of general and specific statistics on the new “Silver Age” of real estate in China and their synchronous development with municipalities along with details on their current projects, but nothing on subsequent events.

As the above chart shows, the MOU proposal of issuing new shares to Shenzhen Metro would not only dilute the stated adversary’s holdings, Baoning, but would also drop the ownership by the longer-term, State-owned China Resources from 15.3% to between 11.16% to 12.35% depending on how much money is raised and the price assuming a 5 or 20 day average closing price.

Now Reuters reports that China Resources has started to wake up to this reality, pitting  the power of one state-owned entity against another. Fu Yuning, China Resource’s chairman, went so far as to label the lack of presentation at the annual meeting as unfortunate. Low-key words but still unusual in China for a cited source to make a negative comment.

China Vanke last closed at 19.04 HK dollars, down 2.5% while the Hang Seng Enterprises Index on which it was listed, closed up .51%.

 

Vanke Vanquishes Baoneng with A Little Help from the State

Called a buy, more like a swap.  Behemoth developer China Vanke, HK 02202 is selling new shares of itself to a state-owned entity in exchange for equity which will effectively dilute Baoneng’s weighty ownership.  If you can’t fight, dilute!

Shortly after new investor Baoneng had acquired over 22% of China Vanke in 2015, making it the dominant shareholder, Vanke suspended both its A and H shares. The reason given was to prepare a restructure.  The only other major shareholder at that time, state-owned China Resources, held 15.29%.

Various news articles emerged regarding Vanke’s Chairman Wang Shi’s  distrust of the brothers Yao Zhenhua and Yao Jianhui at the helm of Baoneng, in terms of both its money sources via wealth management products and its experience in property development. The H shares in Vanke resumed trading on 1/6/16 while the A shares continued to be suspended as multiple announcements were made of promises of details to come.  Details finally emerged on 3/13/16 about a surprise MOU stating that Vanke would be buying a full or partial equity stake in a target company owned by state-owned Shenzhen Metro Group Co., SZMC.  The purchase is to be arranged mostly through the issuance of new shares of Vanke to SZMC.  On the same day Vanke released its earnings, which showed a nice jump of 32% although net profit to shareholders, thanks to a bigger portion to non-controlling interests, increased only 15%. It also raised the annual dividend from .50rmb to .72 rmb. Given the depressing state of real estate in China in all except the 4 top tier cities, this was a positive result and the stock climbed over 9% today to reach a market cap of 307.47 HKD (approx. $47 Billion US).

No value of the equity in SZMC was given, but the Vanke filing did state that the approach would make SZMC a “long-term important shareholder.”  Per Shenzhen Metro’s website, as of 12/14 it had assets of 156.7 Bill rmb (vs. Vanke’s 611.5 B rmb). SZMC also reported net assets of 70.7 B rmb for an asset/liability, of 54.9%.  It stated that it was pursuing the concept of “build metro, build city” and had started its first real estate project in 2013 of ShanHaijing: residences with views of water and hill.  Sales were “good”.  Property under construction at the end of Q1, 2014 was 700,000 sm, (Vanke delivered 20.6 million square meters in 2015.) The real estate group, Metro Group Development Branch, was established in 2007.

Per the MOU, SZMC intends to inject assets of certain premium property projects above various subway stations into the Target Company upon the signing of Formal Documents by both parties. Formal documents are expected March 15, 2016. There is still no announcement of A share resumption.

Golden Paradise, Golden Dream, Golden City and Joying Gold are among the many projects of Vanke where increased control by Baoneng will be rebuffed thanks to the new share sale to SZMC. Details are sketchy, and the parameters are broad, but based on the average closing prices of Vanke H-shares, this would mean an increase of 19% to 27% in shares outstanding dependent on whether they raise 40 or 60 million rmb ($6.1 to $9.1 $US Billion).  Below is the possible scenario and its resultant share increase and ownership changes based on the amount to be raised at a 5 day or 20 day average closing price for China Vanke H shares. (This is based on the pre and post ownership – see below.)

 

Vanke Share Issue 1.PNG

As stated above, there are currently few details on the swap.  Based on the scenarios I’ve shown, which are reasonable based on other transactions in the Chinese market for private share issuance, China Vanke shareholders will face a significant stock dilution to fight off the Baoneng bid.  It’s much too early to see if the swap for property related to metro stations will be worth it.  Additionally, Shenzhen Metro will have a large, controlling interest in Vanke which will give it leverage over decisions.  State ownership, including China Resources, will be from 32% to 38% and could lead to less control over projects than Wang Shi had bargained for.

Original Ownership: Pre- and Post Issue based on 20 day avg. stock priceVanke 20 dayOriginal Ownership – Pre- and Post Issue based on 5 day avg. stock priceVanke 5 day

China Vanke Mega China Developer Makes $60 Million Typo

China Vanke, HK 2202, the jumbo China developer fighting off a takeover. issued a quick oops.  January sales reported at 25.99 Billion RMB should have been 25.59 Billion rmb.  This equates to a 400 Million rmb or ($60.9 Million US) typo.  An honest mistake, probably due to translation problems.  A shares, Shenzhen 000002, still suspended until approximately March 18, 2016 purportedly to figure out a restructuring.  The company is reportedly resisting efforts by upstart Baoneng to supplant the more acceptable Anbang Insurance. Vanke closed up 3.3% in Hong Kong with a 4.37% one-year return.  The A shares closed December 17th at 24.43 rmb.  Hong Kong Shares have declined 21.2% since the A-Share  freeze.

China Vanke Hang Seng Colors