Shareholders lose out in China takeover fight

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BEIJING: Shares in China’s biggest property company plunged this week as it returned to trading after a six-month suspension engineered by bosses trying to fight off what would be the country’s first hostile blue-chip takeover.

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The drop has wiped billions off China Vanke’s market capitalization — hitting its shareholders, rather than the board seeking to preserve its control over the firm.

Analysts say it is a demonstration of both the dysfunctionality of China’s stock markets and the power of vested interests in the world’s second-largest economy — even in the private sector, seen as the best hope for renewed growth.

“Retail investors are unable to make changes,” Li Daokui, a professor at Tsinghua University in Beijing, told AFP, while large shareholders would “rather keep silent and do nothing.”

“Now someone has finally come out and said they are willing to buy shares at a higher price to restructure a company.

“Companies like this are what our stock market needs.”

The saga centers on China Vanke, founded in 1984 by chairman Wang Shi, now 65, an acclaimed entrepreneur who has reached the summit of Mount Everest and trekked to the North and South Poles.

It was only the second company to list on the Shenzhen stock exchange.

Wang and his executives currently hold just around 0.2 percent of the firm, but retain a
tight grip on it by virtue of their positions.

They have been hailed as one of China’s most outstanding management teams. Revenues have ballooned around 50 times since 2000 to 195 billion yuan ($29 billion) last year, when net profits jumped 15 percent despite the country’s growth slowdown and stuttering property market.

But Vanke’s market capitalization of 211 billion yuan is just over a third of its 611 billion yuan in assets.

With an eye on its valuable land bank, private conglomerate Baoneng began buying shares in Vanke last year, becoming its largest shareholder in December with a 24.26 per cent stake.

Then Vanke asked for its dual-listed shares to be suspended in Shenzhen and Hong Kong, blocking Baoneng from any further purchases and denying investors the opportunity to sell.

After six months, Vanke in June finally announced a 45.6 billion yuan asset swap and restructuring that would see state-owned subway operator Shenzhen Metro Group overtake Baoneng as its biggest shareholder, in an attempt to sideline the raider.

Baoneng tried to eject Wang and Vanke’s senior management, but another major Vanke shareholder, state-owned conglomerate China Resources, backed the directors even though it opposed the restructuring deal as it would dilute its own stake.

Trading in Vanke resumed in Shenzhen on Monday and immediately plunged by the 10 percent daily limit, and again on Tuesday.

‘Barbarian invasion’
China enjoyed a decades-long boom that saw become the world’s second-largest economy on the back of infrastructure investment and exports.

Now growth is slowing and it needs to tackle inefficiencies that have built up over time, but could be ignored in the days of double-digit expansion.

In an effort to do so, the Communist party has pledged to give the market the “decisive role” in the allocation of capital.

But reform has been slow, particularly in state-owned enterprises and the vibrant and volatile stock exchanges, with individuals and organizations whose position is threatened by change looking to protect themselves.

AFP

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