Tag Archives: Shenzhen Metro

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.






Developer China Evergrande’s Backdoor Listing May Have Hit a Speed Bump


China Evergrande Stock

China Evergrande, 3333 hk, may have hit a speed bump on its race to its backdoor listing in Shenzhen.  In a brief, 2 page Hong Kong exchange announcement, Evergrande stated that the original agreement from December, 30, 2016  would be amended to change an intended strategic advisor’s legal entity and amount to be invested.  While on the surface it appears innocuous, the change indicates that since this investor would be raising its investment as part of the 30 Billion rmb capital injection, ($US 4.3 Billion), another investor would be potentially decreasing its investment.

The original agreement with 8 investors included the following:

Evergrandes Capital Raising orig

With the revision, assuming all pre-existing investors maintain the original investment amount, the capital to be raised would be 30.5 Billion rmb.

Evergrande Capital Raising new

China Evergrande has reason to expect this backdoor listing to occur, since on 3/16/17 it transferred its 14.1% voting rights in China Vanke, 2202 hk, to Shenzhen Metro Group, sacrificing its voting rights to augment Shenzhen Metro’s voting rights from 15.3% to 29.3% to surpass barbarian Baoneng’s 25.4% shares. (No mention of money changing hands for the transfer, although Evergrande was able to use the shares as collateral  for financing with Citic Securities).  Shenzhen is both a major entity in the Evergrande capital raise and the China Vanke controlling shareholder changes.

Although China Evergrande appears to have done everything necessary to seal its backdoor listing, this latest change implies it may not go as smoothly as it hoped.

China Evergrande, 3333hk, chart

Evergrande Chart

Chart Source: Bloomberg

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