Vanke’s Main Stakeholder Commits Shares as Collateral

(Beijing) – Real estate developer Baoneng Group’s subsidiary Jushenghua has again pledged a portion of its stake in one of the nation's largest developers China Vanke as loan collateral.

Vanke, which successfully rebuffed a Baoneng hostile takeover bid last year, said in a May 4 filing with the Shenzhen Stock Exchange that Jushenghua had put up 91 million shares, or 0.82% of its stock, as part of a deal with Citic Trust on April 28.

The filing did not say how much money Jushenghua borrowed from Citic Trust. But the latest pledge is the fifth of its kind and raised Citic's loan-related holdings of Baoneng subsidiary’s Vanke stake to 182 million shares.

Jushenghua had previously pledged the stock to Shenzhen-based Penghua Asset Management Co. under a loan contract that ended two days before the Citic deal.

Penghua still holds as loan collateral another 343 million Vanke shares owned by Jushenghua.

In addition, Ping An Securities holds 364 million Vanke shares as Jushenghua loan collateral.

In fact, according to Vanke filings with the stock exchange, Jushenghua has pledged almost all of its Vanke stock as loan collateral.

Baoneng is Vanke’s largest shareholder, controlling 25.4% of the company’s stock through subsidiaries Jushenghua and Foresea Life Insurance. Its rise to top stakeholder followed its failed and highly controversial hostile takeover bid last year.

The dispute ended in favor of a Vanke management team thanks to the Shenzhen government’s intervention.

The takeover battle also drew attention to how Foresea invested in equities with funds raised through sales of short-term, high-yield insurance policies that resemble wealth management products.

The China Insurance Regulatory Commission recently started cracking down on firms that offered these policies, which some say are technically not insurance products, due to risk concerns. In February, it fined Foresea 800,000 yuan ($116,400) for “fabricating information” and “misusing insurance funds,” and ordered Yao Zhenhua removed from his position as company chairman.

But Yao has retained his job as chairman of Baoneng. He is also chief executive at Jushenghua.

Vanke’s Shenzhen-listed shares have been trending lower recently, dipping to 18.83 yuan per share May 3 and closing at 19.02 yuan per share May 4.

Falling share prices could make it harder for Jushenghua to pledge its Vanke holdings as loan collateral in the future.

Lower share prices would also add to pressure connected to the company’s use of money raised through nine asset management products – in which funds were used to buy Vanke shares on behalf of Baoneng. Relying on these products made it possible for Jushenghua to buy a combined 10.35% of Vanke shares now in Baoneng's portfolio.

Vanke is overdue for a board reshuffle that was scheduled for March 27. Sources close to the company said the delay was caused partly by Baoneng’s ambiguity over whether it planned to nominate candidates for director slots.

Contact reporter Wang Yuqian (yuqianwang@caixin.com)