28 October 2016
Henry Cheng, Xu Jianyin and Zhang Songqiao appear to be moving in concert in relation to acquisition of shares in Chinese property developer Vanke. Photo: HKEJ
Henry Cheng, Xu Jianyin and Zhang Songqiao appear to be moving in concert in relation to acquisition of shares in Chinese property developer Vanke. Photo: HKEJ

The Big Dee club members and Vanke

Almost three decades ago, four Hong Kong billionaires joined hands in accumulating significant stake in leading property developer Hong Kong Land and eventually walking away with handsome profit.

A similar thing is happening now as a group of Hong Kong and mainland tycoons, who usually gather together to play a poker game called “Big Dee”, are making a move on China’s biggest property developer, Vanke.

These so-called “Big Dee club” members include New World Group chairman Henry Cheng Kar-shun, C C Land Holdings (01224.HK) boss Zhang Songqiao and China Evergrande Group (03333.HK) founder Xu Jianyin.

Evergrande has purchased 753 million shares of Vanke’s Shenzhen-listed shares since last month, spending a total of 14.57 billion yuan. It now has built up a 6.82 percent stake.

Nexus Capital Management Ltd., owned by Zhang Songqiao, said in a regulatory filing this week that it has marginally lifted its holding to take its ownership to 11.54 percent in Vanke’s Hong Kong-listed shares. That represents a 1.38 percent interest in Vanke overall.

Meanwhile, VMS Securities, a brokerage house in Hong Kong with links to the Cheng family, has bought 17.03 million shares of Vanke recently. That accounts for 1.29 percent stake in Vanke’s H shares and 0.15 percent of its total shares.

That means Evergrande, Nexus and VMS Securities have spent over HK$20 billion in acquiring Vanke shares. Together they hold a combined 8.35 percent interest in Vanke, the third largest stake after Chinese insurer Baoneng’s 25.4 percent and China Resources’ 15.31 percent sake.

That resembles another hostile takeover deal 29 years ago.

Back then, property tycoons Li Kai-shing, Cheng Yu-tung, Lee Shau-kee and billionaire Lau Luen-hung secretly accumulated 8 percent of Hongkong Land as of October 1987. And they planned to launch a hostile takeover bid after take their stake further to over 10 percent.

That meant that Jardine, which held 26 percent stake in Hongkong Land, would have to buy back the tycoon’s shares at a premium or risk losing control of the company.

However, the Hang Seng Index suddenly slumped to below 2,000 points from 4,000 points on the “Black Monday” on October 19, 1987, forcing the four billionaires to shelve the hostile takeover plan.

On May 4, 1988 Li Kai-shing led a negotiation with Jardine and the latter agreed to buy back shares held by Li and the other three at HK$8.9 per share.

It’s said that Li and others reaped a good profit as they had acquired the shares at only HK$5 a share on average.

Coming back to the present, members of “Big Dee” club also appear to be in for a good deal.

Everagrande has paid an average of 19 yuan for Vanke A shares, and it already made a profit of 4.4 billion yuan on the book given the closing price of 24.9 yuan on Wednesday. Meanwhile, Vanke’s H-shares also surged nearly 15 percent over last month, generating considerable profit for Nexus and VMS Securities.

They now have plenty of options to milk the profit.

With a gearing ratio below 20 percent, Vanke is known for its financial prudence and operation efficiency. Its dividend yield is a generous 4.3 percent, making it a good ‘buy and hold’ investment.

If the Big Dee club members play their cards well with Vanke’s other two big shareholders, they can possibly take control of Vanke’s board.

As the biggest and second biggest shareholders of Vanke keep fighting for control, the Big Dee club members can also sell their stake to either side at a good price.

This article appeared in the Hong Kong Economic Journal on Sept. 1.

Translation by Julie Zhu

[Chinese version 中文版]

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