China Vanke shares spike 10% on news of Shenzhen property deal​

March 14, 2016 11:55 pm JST

JOYCE HO, Nikkei staff writer

HONG KONG -- China's largest home builder by revenue, China Vanke, announced on Sunday that it is looking to acquire premium property projects adjoining subway stations in Shenzhen that are valued 40 billion to 60 billion yuan ($6.1 billion to $9.2 billion).

The transaction would be essentially funded by placing new sharesto state-owned Shenzhen Metro Group, with the remaining balance settled incash, said Vanke in a filing to the Hong Kong stock exchange.

The bid would catapult Shenzhen Metro Group into the single largest shareholder of Vanke with a 21% stake, said Macquarie Securities,assuming the new shares to be priced at a 25% discount to Vanke's A-shares,which last closed at 24.43 yuan, and the projects to be bought at 10% discount to its net asset value at the top end.

Vanke's Hong Kong-listed H-shares jumped 9.99% to HK$20.15 on Monday on the news, while its A-shares have remained suspended since December against the hostile takeover of Baoneng Group -- a little-known mainland Chinese private property and insurance conglomerate that upped its holdings to 24.26% from just 5% in July 2014 via controlling Shenzhen Jushenghua Co. and Foresea Life Insurance.

"The deal would be positive to Vanke given the rail-cum-property model is proven profitable," said Edward Tse, CEO of Gao Feng Advisory Company the China-focused consultancy, adding that introducing a shareholder with ample land resources would be a strong catalyst to Vanke's stock valuation.

Credit rating agency S&P said the new assets in Shenzhen would boost Vanke's land bank in the tier-one city, where good land parcels are becoming scarce and prices are surging. Currently Shenzhen Metro Group owns approximately 10 projects above its metro stations with gross floor area totaled 5 million sq. meters, according to Macquarie Securities.

However, Tse cautioned that the asset-restructuring plan might flop on Baoneng Group's "no"vote, given the implied dilution of shares. "The might lead to a stalemate that arrests the development of Vanke, with its A-shares trading halted forlonger," added Tse.

"That's certainly a concern to us," said Ken Wong,client portfolio manager from Eastspring Investments, the second largest shareholder of Vanke's H-shares. "Other uncertainties include the decision of China's State-owned Assets Supervision and Administration Commission, which is unlikely to let national property be cheaply auctioned off." 

China Vanke president Yu Liang told reporters at a Monday briefing that he hopes a conclusion can be reached this Thursday at the extraordinary shareholders meeting. That would determine whether Vanke's A-shares could be liberated from the protracted trading halt.

Last Friday the company reported that its net income for the yearended Dec. 31 grew 15.1% to 18.12 billion yuan from a year earlier, while revenue in the same period jumped 33.6% to 184.32 billion yuan.

However, gross profit margin was squeezed, especially in the property development segment, which narrowed by 1.05 percentage points to 21%.

The board announced a final dividend of 0.72 yuan per share, up 44% from the previous year. Its dividend payout ratio was boosted to 43.9%.

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