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 Chinese mainland company.[Photo/VCG]

HONG KONG -?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 Chinese mainland 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 high-profile corporate power struggle has given rise to much 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.

Baoneng now holds 24.972 percent of the company, an increase of 0.7 percent, Vanke said in a brief statement late on Tuesday.

"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.