July 6, 2016 / 3:25 AM / 4 years ago

UPDATE 3-Baoneng lifts stake in China Vanke, fuels speculation of hostile bid

* Vanke mired in high-profile corporate power struggle

* Baoneng stake now at 25 pct

* Baoneng firms have applied to issue up to $3.4 in debt -Caixin (Adds latest stake increase in para 6-7)

By Clare Jim

HONG KONG, July 6 (Reuters) - China Vanke Co Ltd’s largest shareholder has nudged up its stake after a setback in its efforts to oust the property developer’s board, fanning speculation of a rare hostile takeover bid for a mainland Chinese company.

Adding to that speculation was a report that firms owned by the shareholder, financial conglomerate Baoneng, had applied to issue up to 23 billion yuan ($3.4 billion) in debt which would follow recent approval for a 5 billion yuan bond.

The report by Chinese business magazine Caixin quoted an unidentified source close to Baoneng as saying that the funds would be used to help finance the acquisition of shares in other companies.

Baoneng built up a holding of about 24 percent last year and fearing a hostile bid, Vanke’s management last month announced a $6.9 billion deal with white knight Shenzhen Metro Group, which would dilute Baoneng’s holding.

The power struggle has given rise to uncertainty over who has the upper hand. Both Baoneng and Vanke’s second-biggest shareholder China Resources oppose the Shenzhen Metro deal, but China Resources did not back Baoneng’s recent call to oust Vanke’s board.

Vanke said in a statement that Shenzhen Jushenghua Co Ltd, whose parent is Baoneng, bought 78.39 million A-shares listed in Shenzhen on July 5-6, taking its stake to 25 percent.

The latest release comes a day after a separate statement that said Baoneng had increased its stake to 24.972 percent.

“Baoneng bought some more shares last night, which naturally leaves investors wondering whether its next step will be to buy more,” said Liu Junhai, a professor of business law at Renmin University of China in Beijing.

Baoneng, a conglomerate backed by billionaire Yao Zhenhua and with interests in insurance, property and logistics, did not respond to a Reuters request for comment. China Resources, which owns 15.2 percent of Vanke, also did not respond to a request for comment.

Liu said that if Baoneng increases its stake to 25 percent, it will have to disclose that under Chinese rules for listed companies. If its holding rises to 30 percent, then it will have to make a general offer to other shareholders.

The struggle for control has also drawn the scrutiny of regulators. The market is now keen to see if the Shenzhen bourse will approve the Shenzhen Metro deal. Some analysts have also said the bourse could still rule that Baoneng and China Resources are working in concert, which would trigger a mandatory buyout offer.

“There are too many developments in different directions. It’s hard to predict what will happen next,” said Conita Hung, director of Amicus Asset Management in Hong Kong.

The increase in Baoneng’s stake initially sent Vanke’s Hong Kong-listed shares surging 5 percent higher but they later pared gains to trade flat. The broader market was down 1.3 percent.

$1 = 6.6912 Chinese yuan Additional reporting by Lee Chyen Yee and Meg Shen; Editing by Edwina Gibbs and Louise Heavens

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