PROPERTY firm China Vanke Co., which is seeing a bruising battle for control, has asked regulators to investigate the funding of share purchases by its top shareholder and has accused it of using illegal financing channels, a company document shows.

    In the document dated July 18 addressed to the China Securities Regulatory Commission (CSRC), the Shenzhen-based developer said that financial conglomerate Baoneng’s unit has not made full disclosure on its share purchases in the company via nine asset management products.

    Vanke also said the unit’s margin financing using these asset management products violated regulations, which it asked the CSRC to investigate.

    Baoneng and the CSRC were not immediately available for comment.

    Baoneng has built up a 25 percent interest in the nation’s largest property developer by sales since July last year, but analysts have raised questions over how it funded the 45 billion yuan (US$6.74 billion) buy.

    According to earlier filings by Vanke to the Shenzhen Stock Exchange based on Baoneng’s disclosures, Baoneng spent a total of 20.8 billion yuan purchasing 10 percent of shares in Vanke from Nov. 27 to July 6 via nine structured asset management products, of which only 6.9 billion yuan was its own money and the rest came from several banks.

    These figures, on the surface, represent a leverage ratio of two times for Baoneng, but the actual ratio could be much higher given the way the product is structured, analysts have said. Vanke has earlier said the ratio could be as high as over 20 times, indicating Baoneng’s high levels of indebtedness.

    Shares of Vanke in Shenzhen have tumbled 30 percent since they resumed trading earlier this month, following a six-month suspension. Vanke said in the document six of the nine products have posted a “loss” as of July 16, while one was close to the level for a margin call.

    “Small shareholders, media and the public have expressed major concerns over whether Jushenhua [Baoneng’s unit] will be able to sustain its high-leveraged funding source, whether it will trigger a plunge in Vanke’s A share, and whether it will create a systematic risk in the secondary stock market like we saw in the 2015 market rout,” Vanke said in the document.

    Fearing a hostile bid by Baoneng, Vanke in June announced a US$6.9 billion deal with Shenzhen Metro Group, which would dilute the holdings of its major shareholders.

    Magazine Caixin reported Monday the CSRC has expressed concern over companies’ use of complex financial products to fund takeover moves, after market concerns over Baoneng’s financing. It quoted sources close to regulators, without elaborating. (SD-Agencies)