A high-profile battle 
for control over one of China’s best-known companies, China Vanke Co., Ltd has stoked class tensions, raised questions about the role of state-owned enterprises, and captivated the country’s media for nearly a year. Now, it appears to be coming to a head.
Founded by Mr. Wang Shi in 1984, Vanke has grown to be one of the largest residential property developers in China with a market cap over RMB 200 billion. Historically its largest shareholder has been China Resources Co., Ltd, a state-owned enterprise which holds three seats on the board but otherwise has allowed Vanke to operate with a high degree of autonomy.
In July 2015, the quiet summer breeze was disturbed by an unsolicited takeover. Shenzhen Baoneng Investment Group Co., Ltd. via its affiliates, Shenzhen Jushenghua Co., Ltd. and Foresea Life Insurance Co., Ltd., started to build up its stake in Vanke on the open market. Such takeovers have historically been rare in China, in part due to interconnections between publicly traded companies and particularly the influence of state ownership. But this approach was particularly notable because of Baoneng’s relative obscurity within the Chinese market, with Mr. Wang dismissing them as “barbarians”.
By early December, Baoneng’s stake topped 20 per cent. Seeking to hold Baoneng back, Vanke gained an ally when Anbang Insurance Group Co. built up a 7.01% in just 10 days; however this alliance did not stop Baoneng from marching forward, with its stake increasing to 24.29% before the trading of Vanke’s A Shares on Shenzhen Stock Exchange was suspended abruptly on December 18, 2015, ostensibly due to a pending major asset restructuring – though likely as a means for Mr. Wang to halt the growth of Baoneng’s stake while he looked for allies.
Well, it seems that Mr. Wang had found his ‘knight in shining armor.’ In March 2016, Vanke and Shenzhen Metro Group Co., Ltd. (SZMC) signed a memorandum for asset acquisition; then in June, Vanke disclosed a detailed preliminary plan whereby it will acquire Shenzhen Metro Qianhai International Development Co., Ltd. from SZMC in exchange 2,872,355,163 A shares—which would give SZMC 20.65% of Vanke’s issued share capital, surpassing Baoneng to become Vanke’s largest shareholder and block Baoneng’s approach. The board had voted 7-to-3 in favor of the plan, with one director choosing to abstain, citing a conflict of interest. (Mr. Zhang Liping, an independent director on Vanke’s board who is currently employed by Blackstone Group, didn’t vote on the proposal because the two companies are in talks about a commercial property project.)
If that seems like too easy a victory for Mr. Wang, you’re not wrong. Five days after the vote, Baoneng expressed its opposition in a midnight statement, questioning the legality of the board vote, the fairness of the pricing for the target assets, the independence of the independent director Mr. Zhang Liping, and the pricing for shares to-be-issued to SZMC. Also opposing the deal is China Resources, now Vanke’s second largest shareholder with a 15.24% stake, whose three representative directors voted against the deal. In a statement on its official Wechat account, China Resources raised doubts on the legality of the board resolution, and on just who is in control of Vanke.
With Baoneng and China Resources holding a combined 39.59% in Vanke, Mr. Wang’s plan seems almost-certainly doomed; however, a great show will never end before its climax.
That appears to have come at Vanke’s AGM on June 27, where Baoneng and China Resources used their combined shareholding to block approval of the board report, supervisor report and annual report. Not content with exercising its veto on the meeting’s agenda, Baoneng, which currently has no seats on Vanke’s 11-member board of directors, also called for an extraordinary general meeting to oust the whole board, including the founding executive chairman, and two shareholder representative supervisors. The board of Vanke has ten days to determine whether to convene a shareholder meeting.
However, Baoneng and China Resources may have to make determinations of their own: by the time the sun came up the day after the AGM, the Shenzhen Stock Exchange had issued query letters to both parties asking them to clarify whether they are persons acting in concert. China Resources’ response was very clear: on June 29 it announced that it would oppose Baoneng’s proposal to oust the board. The Shenzhen bourse has also asked Baoneng to clarify the impact that ousting Vanke’s board would have on Vanke’s daily operations, and questioned Baoneng’s earlier commitment that it would not change the composition of Vanke’s board and its senior management team.
With China Resources opposing both Mr. Wang’s plan and Baoneng’s proposal, there appears to be a stalemate. So, who will have the last laugh? Investors will have to wait and see.