16 February 2019
CEO Yu Liang needs to boost Vanke's share price and the management’s shareholdings to fend off potential takeovers. Photo: Bloomberg
CEO Yu Liang needs to boost Vanke's share price and the management’s shareholdings to fend off potential takeovers. Photo: Bloomberg

Vanke tries to fend off barbarians at the gate

With annual contracted sales of 171 billion yuan (US$28.25 billion), China Vanke Co. Ltd. (200002.CN, 000002.CN) is easily the world’s biggest property developer. But being at the peak of its glory may also be its most dangerous moments. This is especially true for the company’s founder Wang Shi {王石}, CEO Yu Liang {郁亮} and other top executives. The reason is Vanke’s share price has been plumbing the depths for the most part of recent years.

Its A shares last changed hands at 8.08 yuan apiece this Tuesday, less than one third of its all-time high of 25.48 yuan. With a market capitalization of around 92 billion yuan, Vanke is worth just five times its earnings. Anyone can simply leverage a relatively small amount of money and gain a controlling stake in the mainland realty titan. Yu reportedly put the amount needed at 20 billion yuan.

Vanke’s shares are owned by numerous investors, mostly fund companies. The combined shareholding of Vanke’s top management, including Wang and Yu, is just 1 percent.

This means the company’s top honchos are standing on shaky ground, and may be eased off at anytime. Cheap share price, record operating profits and market domination make Vanke an irresistible, low-hanging fruit waiting to be plucked by big institutional investors and capital magnates.

Yu admitted that a few institutions have contacted the firm to explore “capital cooperation proposals”. Yu is obviously concerned. He needs to boost Vanke’s share price and the management’s shareholdings to fend off potential takeovers before anyone throws him out of his top perch.

Vanke faced such a crisis two decades ago. Some of its major shareholders, including the former Jun’an Securities {君安證券}, challenged the firm’s management in a written petition in 1994, demanding a paradigm shift in corporate governance and the right to nominate directors to the board. Although subsequently vetoed, the coup attempt dealt a heavy blow to the firm as the disputes between major shareholders and the top management threatened to derail the firm’s development.

This explains Yu’s recent move to increase his stake in the company. On March 10 he spent 7 million yuan, almost his entire payroll last year, to acquire an additional one million shares. Vanke shares rallied 5 percent the next day.

Just more than a week later, the state-owned conglomerate China Resources (Holdings) Co. Ltd., already Vanke’s largest stakeholder, bought 26.4 million shares. The move, the first time for CR Holdings since its equity acquisition in June 2003, has boosted its shareholding to 15 percent, or 1.652 billion shares. Vanke shares surged 6.6 percent the next day.

Within the past three weeks Vanke shares saw a rebound of almost 20 percent, representing an extra market valuation of 10 billion yuan. CR Holdings is not ruling out the option of further boosting its stake in the next 12 months.

The Economic Observer notes that CR Holdings maintains a sound relationship with Vanke’s management and refrains from meddling in its business operation. Vanke’s second largest shareholder is Liu Yuansheng {劉元生}, a Hong Kong businessman who has held Vanke shares since its foundation with a current stake of 1.2 percent. Analysts say CR Holdings is more interested in investment return than getting involved in management while Liu is a longtime friend of Wang’s, sharing the same vision for the firm’s development. With their full backing, Wang and Yu can effectively ward off any barbarians at the gate.

In another development, Yu is aggressively pressing ahead with the trial of a partner shareholding scheme, in which about 200 medium to top executives are expected to get up to 10 percent of Vanke’s total shares, according to the 21st Century Business Herald. Vanke is also raising its dividends to 4.5 billion yuan.

However, E-house China, a realty consulting firm, points out in a report that the new scheme may face uncertainties as the current regulatory regime requires a scrutiny of management takeovers and watchdogs are likely to veto such plans on the grounds of protecting small shareholders.

– Contact the writer at [email protected]




EJ Insight writer

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