China Vanke Co, China's largest residential property developer, is currently trying to fight off a hostile takeover by a consortium controlled by Baoneng Group, which has recently boosted its stake in Vanke to 22.45 percent.
Vanke Chairman Wang Shi said at a company meeting Thursday that the company doesn't welcome Baoneng Group to become the largest shareholder as Baoneng lacks credibility, according to the meeting's transcript, which has been widely circulated in the Chinese media in the last few days.
Vanke suspended trading in its shares on Friday afternoon, prompting speculation that it is considering private placements to dilute Baoneng's shareholding, making it more difficult for Baoneng to become the controlling shareholder.
Regarding Wang's response to Baoneng Group's increased stake in Vanke, is it fair to cast aspersions on their market behavior? Probably not. Wang said at the meeting that Vanke has consistently had high credit ratings from international institutions in recent years, but this doesn't mean that other companies are not allowed to boost their investment in a blue-chip firm like Vanke. Investment transactions are part of normal market behavior, so we can't raise moral objections to such decisions.
Some market participants have also questioned whether Vanke's apparent rejection of Baoneng will win favor with minority shareholders or retail investors. In China's stock market, which is dominated by retail investors and where stocks change hands very frequently, retail investors regard profit as the primary consideration. These investors will have noticed that Baoneng's move to up its holding in Vanke has driven up stock prices, allowing retail investors to benefit. Vanke should take these shareholders' interests into account.
The problem is that Baoneng's takeover was conducted without an invitation from Vanke's side and Baoneng is attempting to replace China Resources Co as the largest shareholder in Vanke. Lack of effective communication got in the way.
Baoneng has a 22.45 percent stake while China Resources Co and Vanke's senior management reportedly hold a combined stake of 19.37 percent in the company, which is not a big difference. If Vanke's management pursues the private placements option, it will have to get consent for the plan from smaller investors, who will have to be persuaded that the move will yield profits for them.
At that point, the battle for control of the company will depend on both sides applying their public relations and business expertise to convince shareholders of the wisdom of their respective plans.
But if Vanke refuses to accept Baoneng's takeover and successfully launches private placements, it could lead to the withdrawal of Baoneng's investment from the company, and cause volatility in Vanke's share prices. This could result in losses for retail investors. To avoid such a situation, a face-to-face discussion between the two parties is needed.
The article was compiled by Global Times reporter Wang Wei based on an interview with Sun Jianbo, chief strategist at China Galaxy Securities Company in Beijing.
