Caixin
Jan 30, 2018 11:06 PM
FINANCE

Vanke Official Accuses Baoneng of Skirting Rules on Shares

Baoneng started to purchase a large volume of Vanke’s shares in late 2015 and soon was poised to take control of Vanke and oust its senior executives. But the takeover bid failed. Photo: IC
Baoneng started to purchase a large volume of Vanke’s shares in late 2015 and soon was poised to take control of Vanke and oust its senior executives. But the takeover bid failed. Photo: IC

Financial conglomerate Baoneng Group, once at the center of a controversy involving a failed hostile takeover of real-estate heavyweight China Vanke, is in the spotlight again.

Liu Shuwei, an independent board director of Vanke, wrote an open letter to the China Securities Regulatory Commission (CSRC) on Tuesday, saying Jushenghua, a subsidiary of Baoneng, failed to follow rules and sell about 760 million Vanke shares it purchased two years earlier through highly leveraged funding programs. These holdings account for about 6.88% of Vanke’s total A shares issued at the Shenzhen Stock Exchange.

According to a regulation put in place in July 2016 by the CSRC, investors who borrow money through so-called asset-management programs to invest in the stock market should make sure the leverage does not exceed 1:1. Those who had already violated this rule in their stock investment were told to sell all stocks as soon as the asset-management programs came due.

Jushenghua holds a total of 18.73% of Vanke shares, with 10.34% owned through nine asset management plans it set up in 2015. Seven of the arrangements matured late last year and the other two are due to be repaid by the end of 2018.

Liu said Jushenghua’s seven asset-management programs that matured last year involved two times the leverage ratio. Liu urged the regulators to order Jushenghua to sell all shares purchased through the seven programs, and should not extend the investment.

“Vanke is a blue chip of the A-share market chased by institutional as well as individual investors. Jushenghua’s holding of Vanke shares is against the rules and hurts the small investors’ interests,” Liu wrote.

The CSRC did not immediately react to Liu’s call for action on Tuesday.

In a statement issued on Tuesday afternoon, Baoneng said Jushenghua has signed additional agreements with relative parties to extend the seven asset management plans' clearance date. Baoneng said the act meets regulatory requirements.

Baoneng is currently the second-largest stakeholder of Vanke, holding 25.4% Vanke shares, including those held by Jushenghua. Baoneng started to purchase a large volume of the property developer’s shares in late 2015 and soon was poised to take control of Vanke and oust its senior executives. Regulators stepped in to put a stop to “radical” investors, accusing Baoneng of using proceeds earned from risky short-term, high-yield insurance products through its subsidiaries. Government-owned Shenzhen Metro increased its holding of Vanke shares to 29.38% and became the largest shareholder. The disputes appear to have quieted down since.

Property-related stocks have seen a surge in the beginning of 2018. Vanke shares touched 42.24 per share on Jan. 24, more than doubled from its price in mid-2017.

Correction: An earlier version of this story misstated Jushenghua's total shareholding in Vanke.

Contact reporter Wu Gang (gangwu@caixin.com)

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