China Vanke Co said its top shareholder, financial conglomerate Baoneng, has pledged some of its stake to brokers in return for funds – a disclosure that has fuelled concerns about Baoneng’s financing and its potential to launch a hostile takeover bid.
In a rare high-profile corporate power struggle for a mainland Chinese company, Baoneng began building up its stake of 25% last year.
Fearing a hostile bid, Vanke has announced a $6.9bn deal with Shenzhen Metro Group, which would dilute the holdings of Baoneng and No 2 shareholder China Resources.
Vanke said late on Wednesday that it had been informed by Baoneng that the conglomerate had pledged a combined 8.4% of the company’s shares to China Galaxy Securities Co and Penghua Asset Management.
“This further fans worries about how Baoneng is getting its funds and who is behind the funds,” said Alvin Cheung, associate director at Prudential Brokerage in Hong Kong.”It shows that Baoneng’s not so cash-rich.”
He added that it was rare for a company to pledge shares when the company has borrowed money to finance its acquisitions.
Baoneng did not respond to requests for comment.
The share pledges made by Baoneng unit, Shenzhen Jushenghua, were made in stages, with the first taking place last October and the latest just this week.
Baoneng also holds shares in Vanke through a separate unit, Foresea Life Insurance.
There have been no disclosures about Foresea having pledged Vanke shares.
Much remains uncertain about how the battle for Vanke, a firm with $28bn in annual revenue, will play out.
China Resources has opposed the Shenzhen Metro deal but did not side with Baoneng in its efforts to oust Vanke’s board.
An independent director at Vanke, Hua Sheng, posted on his blog on Wednesday that Baoneng had pledged shares in Jushenghua to China Resources last year to buy Vanke’s stock, reiterating his accusations that Baoneng and China Resources, which owns 15% of Vanke, are acting in concert.
Both Baoneng and China Resources have said that they are not acting in concert in replies to queries from the Shenzhen bourse.
China Resources did not respond to Reuters requests for comment yesterday.