Takeover battles are bad for your health. On Sunday China Vanke, the Hong Kong and Shenzhen-listed property developer in the throes of a tussle for control, delivered first-half results. While profits after tax eked out a rise of one-tenth, this missed market forecasts as margins lost three percentage points (although management said second-half margins should rebound). Growth prospects, however, have been hurt — yet the disruption may ultimately prove good for minority shareholders.
Late last year, a group backed by insurer Baoneng became Vanke’s largest shareholder. It owns a quarter of the company, ahead of state-owned enterprise China Resources Holding. Vanke called Baoneng “unwelcome” and has since been involved in an increasingly complex and protracted war, including proposing a deal with Shenzhen Metro Corp to issue a large block of new shares in return for assets.
As a consequence of this unusually public fight, Vanke’s commercial relationships have suffered. In the first half, the company had to alter terms for, or terminate, 31 co-operative projects between June and August alone. (It completed 70 projects.) The management-services unit has been similarly affected with the hit to the brand and quality perception. On the bright side, Vanke’s finances are sound. Over the half, net debt fell a quarter and is at about 20 per cent of equity. Financing costs, including capitalised interest, are nearly five times covered by earnings before interest, tax, depreciation and amortisation.