Battle Over China Developer Vanke Might Be in Final Throes

By Kevin Kingsbury Features Dow Jones Newswires

A prolonged battle for control over one of China's largest real-estate companies might have reached its final stages.

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China Evergrande Group said late Friday it had agreed to sell its 14% stake in rival developer China Vanke Co. to Shenzhen Metro Group Co., a state-owned subway operator, for 29.2 billion yuan ($4.3 billion)--around $1 billion less than it paid last year to build up the position.

In January, Shenzhen Metro agreed to acquire a 15% stake in Vanke from China Resources Group for 37.2 billion yuan.

A year ago, Shenzhen Metro agreed to a potential $6.6 billion asset-swap deal with Vanke, as the property developer was seeking an ally to thwart a possible hostile takeover by finance and insurance conglomerate Baoneng Group. However, that proposal fell apart in December in the face of opposition from other major shareholders, whose holdings would have been diluted.

The aggressive investment activities of Evergrande and Baoneng have recently come under the scrutiny of Chinese regulators, part of a broader government effort to curb speculative investments and a heavy buildup in corporate borrowing there.

Evergrande, which last year leapfrogged Vanke to become China's largest home builder by revenue, said in a Hong Kong stock-exchange filing it would record a loss of some seven billion yuan in the latest deal. Evergrande said proceeds from the stake sale will mainly go toward debt reduction. The company's leverage has surged in recent years, ending 2016 at $78 billion.

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The seeds of the latest agreement were sown in March, when Shenzhen Metro and Evergrande reached a proxy deal under which the developer turned over its voting power in Vanke to the subway operator, which in January agreed to buy a 15% stake in Vanke from China Resources Group for 37.2 billion yuan.

The deal also comes after Evergrande's shares have more than doubled in the past month, hitting record highs, despite continuing concerns in some quarters about the company's balance sheet. By contrast, Vanke has seen its stock price stuck in a sideways trading range since peaking in November.

The stake deal could help resuscitate the asset-swap effort. Under the original terms, Vanke would have given Shenzhen Metro equity in exchange for real-estate assets. Such an arrangement could allow Vanke to build real-estate projects on top of subway stations in Shenzhen, a technology and business hub just north of Hong Kong.

Dominique Fong contributed to this article

Write to Kevin Kingsbury at kevin.kingsbury@wsj.com

(END) Dow Jones Newswires

June 10, 2017 01:59 ET (05:59 GMT)