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HONG KONG (Reuters Breakingviews) - China Resources has secured an elegant exit from an ugly fight. The state-owned conglomerate is selling its entire 15.3 percent stake in China Vanke for $5.4 billion to Shenzhen Metro. It is an attractive price for the long-time shareholder to get out of the country’s second largest property developer by sales. And it may herald the beginning-of-the-end of a high profile battle for control of the company which has irked regulators.
The seller had been stuck in the middle. In July, China Resources opposed a deal Vanke put forward that would have made state-owned Shenzhen Metro its largest shareholder in an effort to fight off financial conglomerate Baoneng, which had recently become the developer’s largest shareholder. But neither did China Resources support Baoneng’s proposal to remove the entire board of directors.
China Resources’ rejection of both sides has paid off. Vanke had previously proposed issuing shares to Shenzhen Metro at 15.88 yuan each as part of an asset swap. The deal would have substantially diluted China Resources’ stake in Vanke. Now China Resources is offloading its entire stake at 22 yuan per share, a better deal than Vanke’s original white knight plan and a nearly 8 percent premium to the closing price on Jan. 11. China Resources bought around half its stake in Vanke way back in 2000 when the Shenzhen listed shares were trading below 2 yuan.
Vanke shares rose almost 8 percent after the disposal was announced, in part reflecting optimism that Shenzhen Metro will now seek to buy more. Some of the froth has vanished from Vanke's stock in recent months after regulators spoke out against “barbaric’ leveraged company buyouts and said insurers should not be short-term capital market “savages”.
Major shareholders Baoneng and Evergrande, another mainland developer, are unlikely to be buyers in this context. It might make sense for them to follow China Resources out of the door.
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