Shenzhen Metro to Become Largest Shareholder of Vanke

(Shenzhen) — China Evergrande Group has agreed to transfer at a loss all its shares in China Vanke to Shenzhen Metro Group, a move that will make the state-owned city subway operator the biggest shareholder of the second largest property developer in China.

Evergrande, China’s largest property developer by sales, announced on Friday that it has agreed to sell 14.07% of its equity stakes in Vanke for 29.2 billion yuan ($4.3 billion), or 18.8 yuan per share. This would result in a loss of 7.1 billion yuan for Evergrande when compared to the total cost acquiring these shares in previous transactions.

When the deal is completed, Shenzhen Metro is set to become the biggest shareholder of Vanke with a 29.38% of the developer’s equity stakes, overtaking financial conglomerate Baoneng Group.

“The acquisition of the shares will further strengthen Shenzhen Metro Group’s confidence to become a cornerstone shareholder of Vanke,” said Shenzhen Metro in a statement on its website, “a deal that will boost a healthy development of the stock market and improve the shareholding structure of Vanke.”

Evergrande’s disposal of all its shares in Vanke virtually put an end to an almost two-year long battle for the control of Vanke that started in late 2015 with Baoneng stealthily purchasing shares of the property developer in the open market while preparing for a hostile takeover, and mounting attempts to oust its senior executives.

Evergrande joined the battle later and quickly built up a 14.07% stake from the market that made it the third-largest shareholder behind Baoneng and another state-owned enterprise China Resources.

Both shareholders have made claims since the end of 2016 that they will back out of the hostile takeover after the country’s top financial regulators stepped in to crack down on “radical” investors. 

Separately, Evergrande had been approached by the Shenzhen government to withdraw from the bidding for Vanke. In return, Evergrande, which is already a Hong Kong-listed company, would be allowed to make a second listing on the Shenzhen stock exchange through a “backdoor listing.”

Regulators found Baoneng and Evergrande used proceeds from short-term, high-yield wealth management-style insurance policies sold by their insurance subsidiaries to buy Vanke shares, and imposed heavy penalties — baring Evergrande Life from buying stocks for a year, and banning the chairman of Foresea Life Insurance, a subsidiary of Baoneng from the insurance industry for a decade

Contact reporter Dong Tongjian (tongjiandong@caixin.com)