International shareholders who control Chinese property group Nantai have been in a six-month battle to force its management down, underscoring the risks of overseas investors looking to gain control of assets in the country’s troubled property market.
Nantai, a U.S.-listed company that owns properties in the fast-growing city of Shenzhen, has been at the center of a long legal battle between Kaisa, one of China’s biggest developers, and IsZo, a small New York-based fund. Owns less than a fifth of Nam Tai.
Other prominent international shareholders of Nam Tai include US billionaire Peter Kellogg and Hong Kong-based Oasis Management.
The spat has brought the challenges facing overseas investors into rare focus. China’s huge real estate industrywhich has been rocked by a string of international defaults by developers such as Kaisa and Evergrande, is now caught up in the government’s zero-coronavirus campaign that severely restricts access to the country.
Shareholders say they cannot fully control Nam Tai’s day-to-day operations, despite a November vote to reconfigure the board and a legal victory overturning a controversial stock offering launched in 2020.
Investors said that Wang Jiabiao, the former CEO of Nantai in mainland China, refused to fully hand over the daily operations of the business and retained Control the “ribs” — It is a Chinese practice to require a company seal to conduct business. Wang did not respond to a request for comment.
Nam Tai started life as an electronics company in the 1970s, but transitioned into a real estate business over time as property values soared in Shenzhen, the tech hub bordering Hong Kong. Residential prices in the city have more than tripled since 2011, and its assets have attracted the attention of U.S. investors, first on the Nasdaq and then on the New York Stock Exchange in 2003. IsZo originally bought some of the shares in 2017.
“I think it’s the cheapest stock I’ve seen in my 20-year career on Wall Street, and it’s the most exciting thing for me to turn out cheap stocks to invest in undervalued real estate in Shenzhen [city] Brian Sheehy, the president of IsZo, said he invested about $300 million primarily with his own funds.
Tensions between Nam Tai and overseas investors in Kaisa, which was until recently a major shareholder, worsened in 2020, when IsZo tried to force shareholders to vote to change the company’s strategy after its share price tumbled.
Before the vote, Nam Tai issued $170 million in new shares to Kaisa’s affiliates, effectively increasing the developer’s stake from 24 percent to 44 percent. A court in the British Virgin Islands, where Nam Tai is based, subsequently dismissed the rights issue.
However, most of the proceeds from the rights issue have been invested in the Credit Suisse fund, which is Severe exposure to GreensillFinancial services company that collapsed in early 2021. The fund was terminated in March 2021, and Nam Tai said there was “no assurance that we will be able to fully recover our earnings”.
Late last year, Kaisa — the second most indebted developer in the international bond market after Evergrande — defaulted. As a result, it lost control of Nantai shares.
Deutsche Bank forfeited Kaisa’s Nam Tai stake last year after it defaulted on the German lender’s loan, documents filed with the United States show. Shares in Nam Tai are pledged as collateral for the loan.
This year, Deutsche Bank sold those stakes, or about 20 percent of the company, to Oasis Management, according to people familiar with the matter. Deutsche Bank declined to comment. Oasis said it was “in active dialogue with all parties to reach a mutually beneficial solution”.
But even after Kaisa’s ownership stake in Nam Tai was removed, the company continued to complain about its perceived influence. In a statement issued in February, it accused Wang, who worked directly for Kaisa in Shenzhen, of “conspiring” with the developer’s subsidiary.
Another person familiar with the matter said Wang was likely to stay on even after negotiations over the company’s operations were completed.
Kaisa declined to comment.
The challenges facing Nantai investors are similar to those faced by Evergrande’s creditors, which have defaulted on international bonds since September and are in deep trouble. Long and opaque restructuring process.
Evergrande’s overseas investors hope to recover some of their money by going after subsidiaries listed outside mainland China, such as Nantai.
But these subsidiaries often rely on mainland assets and cash flow. In Nam Tai’s case, a Hong Kong investor not involved in the company said they “couldn’t imagine” how an overseas investor could go to China and say: “I’m a shareholder and I control the company”.
IsZo points to Nam Tai’s relative lack of debt, which contrasts with the huge leverage that underpins the balance sheets of other developers.
Nam Tai chairman Michael Cricenti said it wanted “to invest more in China, particularly the Greater Bay Area, after we take over the Chinese subsidiary”, while on Nam Tai’s board in 2000 by selling brokerages Spear, Leeds and Kellogg “What has happened in recent months has only strengthened my belief that this fight is worthwhile and that we will win in the end,” the members said.
But despite last year’s surge, the company’s shares have lost nearly 60% in 2022, leaving the company with a market cap of just $165 million. Last week, trading in New York was suspended due to “regulatory issues.”
Earlier this year, Sheehy noted that the share price “doesn’t reflect the underlying value of the property.” “I found [this] It’s confusing because this is one of the most important real estate properties in China,” he said.
Additional reporting by Andy Lin in Hong Kong