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China Vanke shareholders wrestle for control

's second-largestshareholder, China Resources Group, has reportedly been considering acquiring theshares held by its largest shareholder, Baoneng Group.

ChinaResources and Baoneng Group have been in negotiations since February, but have notreached a consensus yet on a price, mainland financial publication Caixin reported, citingsources familiar with the matter. If China Resources, which owns an approximately15.29% stake in Vanke, takes over Baoneng's 24.29% holding, it would have more than30% of voting rights in Vanke and would return to its earlier place as largest shareholder,Caixin noted.

However,the move could derail Vanke's asset-restructuring plan with Shenzhen Metro. In mid-March, Vanke said it plannedto acquire property projects atop the metro operator's subway lines for up to 60billion Chinese yuan, a move perceived as a shrewd maneuver to increase its exposurein Shenzhen and to thwart a potential uninvited takeover bid by Baoneng Group, whichovertook China Resources as Vanke's largestshareholder after aggressively buying up its shares in 2015 through Shenzhen Jushenghuaand Foresea Life Insurance.

The metrodeal, which could make Shenzhen Metro the biggest shareholder of Vanke, was problematicfor China Resources, according to Zhang Hongwei, research director of property consultancyTong Ce Real Estate.

"ChinaResources had been Vanke's largest shareholder for about 15 years and likes itsgrowth as a company. It definitely does not want lose grip on the developer. ButIf Shenzhen Metro becomes a major shareholder, it means that China Resources' seatson Vanke's board would be further reduced, and the company's ownership structurewill become more complicated," he said in an interview.

Overthe past few months, China Resources' attitude toward Vanke has shifted. It brokea long-standing silence in early March to express supportfor the developer over its ownership battle with Baoneng, but was dissatisfied withthe manner in which Vanke unveiled a plan to buy assets from Shenzhen Metro. FuYuning, Chairman of China Resources, criticized the manner of the deal in a March19 interview with TencentFinance, saying that the signing of a memorandum of understanding between Vankeand Shenzhen Metro came just a day after a Vanke board meeting where there was nomention of the deal at all.

On theother hand, Baoneng is also unwilling to give up Vanke, a source familiar with thematter told S&P Global Market Intelligence on condition of anonymity. "Itis widely reported that Baoneng is suffering from high leverage, but the financialconglomerate is much more deep-pocketed than outsiders think," the source said,adding that Baoneng is keen on owning high-quality property developers such as Vanke,whose net profit jumped15.1% year over year to 18.12 billion yuan in 2015.

It isalso possible that China Resources and Baoneng could align to fend off ShenzhenMetro, and that Baoneng could sell part of its holding in Vanke to China Resources,market observers said.

One movethat could pave the way for the transaction between China Resources and Baonengis the transfer of Vanke shares between Baoneng-controlled Shenzhen Jushenghua andForesea Life Insurance, according to Yan Yuejin, a researcher at China R&D Institute.

ShenzhenJushenghua has agreed to transfer its directly and indirectly held voting rightsattached to 1,473,397,218 mainland-listed shares in Vanke to Foresea Life Insurance,according to an April 8 filing.The shares represent about 13.35% of the total issued share capital of Vanke.

By consolidatingthe shares within the group, Baoneng could improve the efficiency of any potentialdeal with China Resources as well as concentrate its voting rights at Vanke's boardmeeting, Yan said in an interview.

Vanke'sshareholders voted inMarch to approve its plan to extend the suspension of its mainland-listed shareto June 18, allowing the company to prepare for "a material asset restructuring."Until then, industry observers await the next move.