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source from:WSJ
MARKETS HEARD ON THE STREET
Shareholder Fight Puts China’s Market Resolve on the Line
Struggle over giant developer tests whether the country’s markets can really grow friendlier to investors
By JACKY WONG
June 28, 2016 7:13 a.m. ET
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A rare Chinese boardroom tussle is testing the country’s resolve to make markets friendlier to investors.
Hostile takeover battles are unusual in China, where most companies have a controlling shareholder, sometimes the government. But China Vanke, a developer in the country’s southern city of Shenzhen, doesn’t have one—and its entrenched management team’s jobs are now in danger.
Baoneng Group, an obscure insurer, became Vanke’s biggest shareholder last year. That raised management fears of a takeover attempt, which the developer proposed to thwart by issuing a big chunk of new shares and using them to buy projects from subway operator Shenzhen Metro. Baoneng’s countermove: an attempt to remove Vanke Chairman Wang Shi and most of the board.
State-owned conglomerate China Resources, which had been Vanke’s largest shareholder until Baoneng came on the scene, has also come out against the deal.
Both voted against resolutions Monday at Vanke’s annual general meeting, where Mr. Wang hinted that regulators should step in. “Capital in the markets cannot just do whatever it wants,” he said.
But his adversaries haven’t done anything that isn’t ordinary in an unfettered market. Baoneng bought its Vanke shares in the open market. China Resources is voicing opposition to a transaction that would dilute its interests.
If any party’s actions are open to question, it’s Vanke’s. The tie-up with Shenzhen Metro would be highly dilutive and—as China Resources has pointed out—could have been financed with debt. Vanke has suspended trading in its Shenzhen-listed shares for more than six months, presumably to prevent Baoneng from buying more. Arbitrary trading halts were one reason index provider MSCI earlier this month decided against including Chinese domestic shares in its indexes.
Credit-rating company Moody’s is worried that Vanke’s rating could be hurt by removal of the management team, led by Mr. Wang since the company’s founding decades ago under the Shenzhen municipal government. Vanke has delivered stellar results through prudent financial management—not a commonplace in China, especially for developers.
But the alternative isn’t so bad either. China Resources has no shortage of managers for a property business, given that it owns another highly rated developer, China Resources Land.
Vanke was among the first batch of companies listed on the Shenzhen stock exchange as the country moved to embrace the market. Now, 25 years later, it’s time to accept the sometimes uncomfortable effects of letting market forces rule.
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