Will New WMP Regulations Kill Baoneng's Vanke Takeover Attempt?

Baoneng is raising money from WMPs for its takeover attempt (WMPs Funding Vanke Takeover Battle), but new regulations could kill the strategy. (WMPs May Be Banned From Stock Market)

QQ: 理财监管新规出台 宝能系还有“弹药”么？

Shenzhen huge Shenghua Company Limited (hereinafter referred to as huge Shenghua), and continues to increase holdings of Vanke (000002.SZ) share the money come from? Bank financial capital is an important "golden master", it reported that Zhejiang Bank has provided funding for a huge treasure energy system, and a considerable part of these funds which could be used to acquire shares of Vanke, but in financial CBRC promulgated new regulations draft after Boland Department financing capacity may be limited.

...Zhejiang Bank official to CBN reporter, said that the new regulations on banking financial services introduced, with the cooperation of China Zheshang Bank Po Energy will have an impact, the bank is currently studying with in-house experts, the case needs also we continue to understand.

China File: New Territory For Financial Oversight Reform

Vanke management put more pressure on Baoneng July 19 by asking the stock exchange and the China Securities Regulatory Commission (C.S.R.C.) to investigate the stakeholder’s insurance subsidiary Shenzhen Jushenghua Co. for allegedly breaking securities laws and failing to meet information disclosure requirements.

The bitter controversy has focused on Baoneng’s funding arrangement. Many want to know exactly where the money has been coming from, but so far neither Baoneng nor government regulators have straightforwardly revealed Baoneng’s funding course.

Baoneng apparently used a complex financing mechanism that included high-interest-rate borrowing. Knowledgeable sources told Caixin that separate investigations by the C.S.R.C., China Banking Regulatory Commission (C.B.R.C.) and China Insurance Regulatory Commission (C.I.R.C.) found no irregularities tied to Baoneng’s means of fundraising. But market players and analysts have expressed skepticism.

Baoneng Average Price for Vanke: 14.75 Yuan Per Share

iFeng: 万科，你算错了！宝能平仓线：14.75元！

WMPs Funding Vanke Takeover Battle

Bloomberg: Vanke Share Slide May Spur Liquidity Squeeze at Baoneng Fund

Baoneng has used about 43 billion yuan ($6.4 billion) to purchase Vanke shares in the secondary market, JPMorgan analysts led by Katherine Lei wrote in a July 12 note. About 26 billion yuan was lent by six banks through asset-management plans, or AMPs, a type of shadow-banking arrangement that is used for stock purchase in China, according to the note. Banks including China Construction Bank Corp., China Minsheng Banking Corp. and China Zheshang Bank Co. participated in the financing, according to a China Business News report on July 8.

...According to industry practice, if a stock’s drop hits a stop-loss level leading to a 20 percent decline in the fund’s net asset value, Baoneng would need to inject more cash into it, otherwise senior investors such as the banks can liquidate the fund to limit their losses, according to JPMorgan analysts.

Vanke shares were trading at 14 yuan back in November 2015 before the takeover attempt began, were halted above 24 yuan per share in December 2015, and fell to 22 yuan when trading resumed on July 4, now trading at 17.11 yuan per share (The Shenzhen listed 000002).

China Resources Opposes Baoneng's Vanke Move

Bloomberg: Vanke Major Holder Objects to Baoneng’s Board Reshuffle Motion

The latest development underlines the competing interests of state-owned China Resources, a long-term Vanke major shareholder, and Baoneng, amid a restructuring of mainland China’s largest listed developer. Shenzhen-based Vanke has announced a 45.6 billion yuan ($6.9 billion) share sale to Shenzhen Metro Group in a bid to end a battle for control of the developer that has been going on for more than six months. Both China Resources and Baoneng have said they opposed the deal that would make the southern Chinese rail operator Vanke’s largest shareholder.

Battle for Vanke Heats Up

Reuters: Vanke says business under pressure after Baoneng move to oust board

A plan by China Vanke's largest shareholder bloc to oust the property developer's board has led banks to reconsider how they rate the company's credit, Vanke President Yu Liang told a shareholders' meeting on Monday.

Financial conglomerate Baoneng, which built up a big stake in Vanke last year, is now seeking to oust founder and chairman, Wang Shi and the rest of the board, and has called for an extraordinary general meeting, Vanke said in a statement late on Sunday.

WSJ: Heat Rises on China Vanke

Earlier this month, Vanke said it would issue new shares in an asset-swap deal that would make subway operator Shenzhen Metro Group its largest shareholder. Shenzhen is a metropolis in southern China.

The deal, which will be dilutive, will give Shenzhen Metro a 20.65% stake of the enlarged share capital and will displace Baoneng as Vanke’s largest shareholder. In exchange for the issued shares, Vanke would get land atop metro stations.

Baoneng, according to the exchange filing, is seeking to undermine Vanke’s strategy, which is widely seen as a poison pill. Companies threatened with unwelcome takeover offers often use tactics to make themselves unattractive to bidders.

Baoneng became Vanke’s top shareholder after buying a 24.29% stake through its subsidiaries, bypassing the previous incumbent, China Resources Group. China Resources also opposes the Shenzhen Metro asset-swap deal.

FT: China Vanke boardroom feud boils over

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Both the insult and the prospect of an unprecedented battle for control over one of China’s best-known companies captivated the country’s media. Adding to the drama was Mr Wang’s reputation as one of the country’s most admired and colourful entrepreneurs.

Mr Wang, also a mountaineer and adventurer, built Vanke into a successful developer but never sought to consolidate control over the company, trusting its largest shareholders to not interfere in management.
Trading in Vanke’s Shenzhen-listed shares has been suspended since December 18 pending a restructuring. Both Vanke and Baoneng are based in Shenzhen, the special economic zone bordering Hong Kong.

Shares are still trading in Hong Kong and have formed a head-and-shoulders pattern. If it completes, the downside target is HK$9 and change, a 42 percent decline.

Corporate Takeover, China Style

Caixin: Intensifying Battle over Who Controls Vanke

Two companies battling for control of the nation's leading homebuilder China Vanke Co. have teamed up to fight a controversial asset restructuring plan through which a Shenzhen government-owned company would become Vanke's largest shareholder.

Through two subsidiaries, developer Baoneng Group announced June 23 that it firmly opposes a proposed deal that would make Shenzhen Metro Group Co. the leading Vanke shareholder.

Currently, Baoneng is indirectly Vanke's largest shareholder, as its subsidiaries Shenzhen Jushenghua Co. and Foresea Life Insurance Co. control a combined 24.29 percent.

Shenzhen Metro wants to take the helm through a deal that would see Vanke issue 45.6 billion yuan worth of new company shares to buy its subsidiary Qianhai International.

Vanke Invests in Shenzhen Metro to Thwart Takeover

Caixin: Vanke Announces Plans to Take Stake in Shenzhen Metro Subsidiary

China Vanke Co. Ltd., the country's largest publicly traded property developer by sales, said it plans to issue new shares to fund the purchase of a stake in a subsidiary of Shenzhen Metro Group Co., a move apparently aimed at fending off a bid for a hostile takeover.

China Vanke said on March 13 that it plans to pay between 40 billion yuan and 60 billion yuan for a stake in a real estate unit of Shenzhen Metro, a state-run urban transit company. The developer will cover the acquisition largely by selling new shares to Shenzhen Metro, Vanke said in its statement.

...China Vanke's management, led by founder and chairman Wang Shi, has been battling Baoneng Group for control of the developer since September.

Risky Takeover Financing Comes to China

Caixin: Vanke's New Investor Got Funds in Way Analysts Say Is Risky

Most of the capital that Baoneng Group has used and plans to use to take control of China's largest property developer came from bank wealth management products funneled through a complex and highly leveraged arrangement that analysts say is risky.

Once the credit cycle reboots, there will be a lot of money flowing into equities.

October Home Sales Increase for Developers; Sales Chart

iFeng: 10月31家房企销售额环比升13.9% 连续3个月增长

This is the table from the article. On the left is the developer names. Vanke is the first on the list. The final line is the total for the 31 developers.

The six columns from left to right are: October Sales (100M yuan); MoM change; YoY change; Cumulative Sales through October (100M yuan); Cumulative YoY change; Sales Target Completion Rate.

Chinese shares pummeled in Hong Kong

Investors are pricing in a much slower Chinese economy as disappointing economic numbers come in and today was the worst one-day decline in the past three months. The Hang Seng China Enterprises Index tracks H-shares in Hong Kong. Today, the HSCE was knocked for a 3.4% loss and was down as much as 3.7% late in the day. Beijing Capital International Airport (0694) was hit for a 7.1% loss. Jianxi Copper (0358) fell 6.0%; Sinofert (0297) lost 5.9%; China Minsheng Bank (1988) declined 6.2%; Sands China (1928) slid 4.9%; CITIC (6030) tumbled 5.7%; and Chow Tai Fook (1929) plunged 9.6%.

In the real estate sector, Sino-Ocean (3377) sank 7.5%; Guangzhou R&F (2777) fell 6.6%; China Resources Land (1109) declined 6.1%; SOHO China (0410) lost 4.1%. On the Mainland, Vanke (000002.SZ) fell 3.4%, well ahead of the 1.2% drop in the Shanghai Composite.

Chinese developers rush to unload ￥5 trillion inventory

Chinese developers are putting 100% of their workforce into sales with inventory and debt pressure mounting, as ￥5 trillion in inventory weighs on their balance sheets. Inventory increased 50% in 2011 over 2010; the average inventory per developer is ￥10 billion.

Among them, China Merchants (000024.SZ) had inventory of ￥51.44 billion yuan, an increase of 33% over 2010; Vanke (000002.SZ) inventory reached ￥208.3 billion yuan, up 56%; Beijing Capital Development (600376.SS) ￥43.049 billion, an increase of 72%; Sino-Ocean (3377.HK) inventory is quite small, but the increase was very high, from ￥231 million at the end of 2010 to ￥487 million at the end of 2011, an increase of 111%.

Credit remain tight, trust loans are coming due and the inventory has become a nightmare for the developers. Ren Zhongwei of Beijing Normal University's Institute for Monetary Research estimates the inventory has a cost of capital of ￥345. In 2011, the property sector had profits of ￥500 billion, but this will fall in 2012 and that could put the industry close to break even.

Industry analysts say that after the "winter" comes the selling season. Sales dried up at the end of 2011 and into 2012, while prices declined. Now comes the rush to unload inventory and what I expect will be the waterfall price declines, as I wrote here:

To sum things up: home prices need to fall at least 20% in order for buyers to see their costs decline, due to higher interest rates and taxes. There's some local differences such as the high transaction tax in Beijing, but overall, it seems that 20% is a good rough estimate. On top of that, prices will need to fall at least another 5 to 10% to attract buyers who now expect price declines. Now we're talking about a 30% price decline as the baseline scenario! Markets always overshoot and China will be no different. Waterfall price declines are coming in 2012; local government and the banking sector will be severely impacted.

I do not have a wave count on Chinese home prices, but to put it into terms of Elliot Wave, wave 3 is coming. The "winter" of 2011 and early 2012 was wave 1, the recent thaw that's seen transaction volumes and some prices rebound is wave 2.

Source: 500强房企库存近5万亿 开发商进入全员卖房模式

16 major listed real estate firms see sales drop in Janaury; Beijing more pessimistic

Sales are down almost across the board, with Vanke seeing declines in both total area and value. 16家上市房企业绩普降 1月销售同比降52.8%

As the graph shows, Vanke (far left) saw a 40% decline in sales, but they also saw area sold decline 28%. Most firms saw similar results, with sales area down less than value, which means the higher end developments were seeing better results.

Key data from the article: construction may be down 20% to 30% and developers may halt land purchases. This is bad news for employment, the economy, and local government finances.

An English article with a look at sales by firm. Major Chinese developers' January 2012 sales

China Vanke (000002.SZ) -39%; Evergrande Real Estate (3333.HK) -77%; China Overseas Land & Investment (0688.HK) -50%; Longfor Properties (0960.HK) -72%; Shimao Property Holdings (0813.HK) -70%; Guangzhou R&F Properties (2777.HK) -57%.

Below is a six-month chart of the above shares, plus Guggenheim China Real Estate ETF (TAO). The news has gotten steadily worse, but investors sold ahead of the shift. In the past few weeks, shares have rallied along with everything else in the global financial markets.

While the markets are at least enjoying a reactive bounce, the mood on the ground is more intense pessimism. 北京楼市悲观预期加重 买卖双方博弈升级

In Beijing, buyers now expect price declines and this psychological change has shifted the market from one of buyers chasing higher prices, to gamesmanship. The article repeats the current common wisdom: a drop of 10-15% in the first half of the year followed by stabilization in the second half. Individual properties could see steeper drops. The article discusses how Beijing has a more complex situation because the government must deal with many non-Beijing residents trying to buy homes. The government has policies designed to slow population growth and make it harder for those without a Beijing hukou to buy homes.