China Vanke Co., Ltd. ("Vanke" or the "Company", together with its subsidiaries "the Group", A-share stock code: 000002, H-share stock code: 2202) today announced its proposal of acquiring assets by way of issuance of shares ("Proposal"). Vanke intends to acquire the 100 per cent equity interest in SZMC Qianhai International Development Co., Ltd. (深圳地鐵前海國際發展有限公司) ("Qianhai International") from Shenzhen Metro Group Co., Ltd. ("SZMC") by way of share issue ("Transaction"). The consideration is preliminarily estimated to be RMB45,613 million. The entire consideration will be satisfied by share issue, at a preliminary issue price of RMB15.88 per consideration share. Accordingly, Vanke will issue 2,872,355,163 A shares, representing 20.65 per cent of Vanke's enlarged issued share capital, to SZMC.
"The cooperation with SZMC not only enables Vanke to find the best foothold for its new business, but also provides assurance for the rapid development of Vanke's new business. Provision of integrated services surrounding metro facilities will become the most important development direction of Vanke," said Ms Zhu Xu, the secretary to the board of Vanke.
The Target assets ("Target Assets") under the Transaction is Qianhai International, whose major assets currently comprising the land lots for Qinahi hub project and Antoushan project. Both projects, which are pending for development, are prime and rare large-scale projects atop metro facilities in the core districts of Shenzhen, with a total planned plot ratio-based gross floor area ("GFA") of approximately 1,811,000 sq m. The Antoushan project is located at the intersection of Metro Line 2 and Metro Line 7, with a planned plot ratio-based GFA of approximately 533,000 sq m. The project is in the Antoushan district, at the interaction of Huaqiaocheng district and Xiangmihu district, being the neighbourhood for luxury residences. Qianhai hub project is planned to be at the junction of three metro lines and two intercity rail lines; as rail transit will facilitate seamless connection to Hong Kong in future, Qianhai hub project is positioned to be a world-class hub complex landmark, propelling Shenzhen to be a world-class city and leading regional economic transformation and advancement. With a planned plot-ratio based GFA of approximately 1,278,000 sq m, Qianhai hub project is located in Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, in a pivot location of Guiwan district. It will comprise a variety of properties such as business hotels, Grade A office buildings, commercial properties above and below ground level, luxury hotels, and serviced apartments. There is a seamless connection between the project and Qianhai integrated traffic hub.
The Transaction has significant implication for Vanke. It not only enables Vanke to have direct access to premium properties atop metro facilities in the prime locations of Shenzhen, but also introduces SZMC as a strategic shareholder to the Company. In addition, Vanke is able to have intensive participation in the innovative "Railway + Property" development model, significantly broadening its sources of land reserves in future, as well as accelerating its transformation into an integrated urban services provider. The Transaction will serve to drive Vanke's product and business upgrade, to enhance its long-term profitability, thereby allowing all the shareholders to enjoy the economic benefits derived from metro development.
It was learned that at Vanke's board meeting, on June 17, for consideration of the Transaction proposal, director Zhang Liping had applied to abstain from voting, due to possible connection with the Transaction and conflict of interest. After hearing the report on the proposal from Vanke's management, the directors representing China Resources expressed their objection against the Transaction. They argued that, although they agreed that Vanke would benefit from the cooperation with SZMC, it was not necessary to realise the cooperation through share issue. The China Resources directors believed Vanke could have acquired the subject assets with cash. China Resources directors' opinion was contrary to those of independent directors present at the board meeting. One independent director noted, "I think we are not acquiring assets, but the future of Vanke, in this Transaction.' Another independent director believed "the disapproval of the Transaction would damage the corporate image of Vanke, and asked if SZMC was not able to inject assets, what sort of premium assets China Resources would be able to provide to support Vanke's development. The Transaction proposal was decided by 10 non-connected directors by voting, with 7 directors in favor, 3 directors against, the Transaction proposal was approved by 2/3 of the votes.
Shenzhen's leading landmark + rare prime luxury real estate
"Owing to its unique geographical location, Qianhai hub project possesses the advantage of being a one-of-a-kind strategic traffic hub in the world. It takes only 15 minutes to reach the CBD, as well as the international airports of Shenzhen and Hong Kong respectively. It is, therefore, unique in its own right. Upon completion, Qianhai hub project will become the world's fourth largest super complex. Qianhai hub project will become a benchmark for Shenzhen's internationalisation," said Ms Zhu.
Like its peers, Vanke is facing the rising challenges in land development. As at the end of 2015, Vanke's project resources available for development in Shenzhen amounted to only 2,221,000 sq m, including Hongshuwan project and Shenzhen North Railway project, which are cooperation projects with SZMC.
Upon successful completion of the Transaction, Vanke will obtain two landmark projects located in city centre with an aggregate GFA of 1,811,000 sq m, for a consideration of RMB45,613 million. Compared with the recent land premium, project location and comparable housing prices in the same neighbourhood in Shenzhen, the aforesaid consideration fully reflects the economic benefits to be brought along through the introduction of SZMC as Vanke's shareholder.
Ms Zhu noted: "The consideration for Qianhai hub project and Antuoshan project demonstrates a significant advantages against comparable properties in the open market. The projects offer promising earning prospects and are expected to become significant profit sources of Vanke. In the long run, the Company's acquisition of relevant assets will enhance product quality and operating results of the Company and create greater return for its shareholders."
According to the Proposal of the Transaction, the issue price of Vanke consideration shares is RMB15.88 per share, representing 93.6 per cent of the average trading price of Vanke's A shares in the 60 trading days prior to pricing reference day (the day of announcement of the Board resolution). According to the Proposal, Vanke is expected to issue 2,872,355,163 A Shares to SZMC. Upon the completion of the Transaction, assuming no change in its H share capital, SZMC will hold 20.65 per cent of the total share capital of the Company after the completion of the Transaction. The total amount of A Shares held by Shenzhen Jushenghua Co., Ltd. and parties acting in concert with it will account for 19.27 per cent of the total share capital of the Company after the completion of the Transaction.
Applying "Railway + Property" model to grasp development opportunities from urban economic circles
SZMC is a large state-owned enterprise under the Shenzhen Municipal Government. SZMC is engaged in investment and financing, construction, and operation of rail transit in Shenzhen. As of 31 December 2015, SZMC's audited net assets amounted to RMB150.3 billion, with total assets of RMB240.4 billion. SZMC is the most marketised rail construction and operation entity and most successful domestic enterprise in exploring "Railway + Property" development model. It is also the most capable rail construction and operation enterprise in cross-territorial expansion in China.
Choosing SZMC as its counterpart in the restructuring, Vanke has more fundamental consideration. According to the development history of such developed countries as Japan and the US, urban economic circle is the definite trending in urban development, while the rail transit network, as an important linkage connecting conurbations, plays a significant role in the formation of urban economic circles.
As the main force behind Shenzhen railway transit construction, SZMC operated four metro lines in Shenzhen, with a total length of 158 km as of the end of 2015. Property development projects above metro facilities owned by SZMC spread across various major development districts in Shenzhen, including Qianhai Shekou Free Trade Zone, Shenzhen Bay Super Headquarters Base, as well as Futian and Longhua.
Given the rapid development of rail transport construction in Shenzhen, it is expected that by 2020, there will be more than 425 km of metro rail in operation. Under the long-term blueprint, rail transit total distance will reach 1000 km in Shenzhen. The extension of new metro lines is expected to bring along more project development opportunities.
Recently, SZMC and Vanke have reached an initial cooperation consensus in relation to the joint development of PPP (Public-Private Partnership) projects in rail transit. On 12 June 2016, SZMC and Vanke entered into a memorandum of understanding ("MOU") for the intended strategic cooperation of rail network along the metro routes of Shenzhen Metro Phase IV. Shenzhen Metro Phase IV under planning will have 18 rail lines with a total of approximately 446 km of rail. The first batch of projects with seven new rail lines above which there is the possibility for property developments atop of 6 railway depots and 6 car houses with a projected GFA of over 4 million sq m.
Also on 12 June 2016, Dongguan Industrial Investment Holding Group, Chongqing City Transportation Development and Investment Group and China Metro Group also entered into MOUs with SZMC and Vanke. This signifies an important step for SZMC's nationwide expansion outside of Shenzhen. In future, SZMC and Vanke's cooperation is likely to extend to territories outside of Shenzhen. With the expansion of metro routes, Vanke will be able to obtain abundant supply of premium project resources at reasonable prices in the core cities along metro routes, thereby allowing all the shareholders of Vanke to enjoy the economic benefits brought by the metro era.
Ms Zhu noted that Vanke currently has 34 properties atop of metro facilities across the country with a GFA of 11.35 million sq m. These projects are the best projects of Vanke in terms of growth potential and stability, and they serve as an important base for incubating Vanke's various new businesses.
About Vanke
Vanke is one of the largest property developers listed in the PRC, and the world's largest residential property developer. The Company is principally engaged in the property investment in economic centres and cities such as Guangshen Region surrounding the Pearl River Delta, Shanghai Region surrounding the Yangtze River Delta, Beijing Region surrounding the Bohai-Rim Region, and Chengdu Region, which comprises core cities of central and western China. At present, Vanke has penetrated more than 60 cities in the PRC. The Company's A shares became listed on the Shenzhen Stock Exchange since January 1991. Following the Company's B-to-H share conversion, the Company's H shares have become listed on the Main Board of The Stock Exchange of Hong Kong Limited since 25 June 2014.
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For media enquiry:
Wu Dan
China Vanke Co., Limited
Mobile: 0086-188 2640 1523 / 156 2516 1240
Email: wud09@vanke.com
Christine Chan
CorporateLink Limited
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Email: christine@corporatelink.com.hk
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