International shareholders who took control of Chinese real estate group Nam Tai have waged a six-month battle to force its management, underscoring the risks for foreign investors seeking to take control of assets in the country’s struggling property market.
U.S.-listed Nam Tai, which owns property in the fast-growing city of Shenzhen, has been at the center of a long-running legal battle between Kaisa, one of China’s biggest developers, and IsZo, a a small New York-based fund that owns just under a fifth of Nam Tai.
Other prominent international shareholders of Nam Tai include US billionaire Peter Kellogg and Hong Kong-based Oasis Management.
The row casts a rare spotlight on the challenges facing foreign investors in China’s vast real estate sector, which has been rocked by a series of international defaults from developers such as Kaisa and Evergrande, and is now caught up in the zero campaign. -Covid from the government which has severely limited access to the country.
Shareholders say they haven’t been able to take full control of day-to-day running of Nam Tai, despite a vote that reconfigured its board in November and a court victory that quashed a broadcast. controversial actions launched in 2020.
Investors say Wang Jiabiao, former general manager of Nam Tai in mainland China, has refused to hand over day-to-day management of the business entirely and retains control of “chops” – a Chinese convention that a company’s hallmark is necessary to run a business. Wang did not respond to a request for comment.
Nam Tai started life as an electronics company in the 1970s, but over time it transformed into a real estate company after property values in Shenzhen, a technology hub on the border of Hong Kong, soared. Residential prices in the city have more than tripled since 2011, and its assets have caught the attention of investors in the United States, where it was first listed on the Nasdaq and then in 2003 on the New York Stock Exchange. IsZo originally bought a stake in 2017.
“I thought it was the cheapest stock I’d seen in my 20-year career on Wall Street, and it turns out the cheap stock was invested in undervalued real estate. in Shenzhen, which for me is the most exciting. [city] on earth,” said Brian Sheehy, chairman of IsZo, a company he primarily uses to invest about $300 million of his own money.
Tensions between foreign investors in Nam Tai and Kaisa, who was until recently a major shareholder, escalated in 2020 when IsZo tried to force a shareholder to vote to change the company’s strategy following a fall of the share price.
Prior to the vote, Nam Tai issued $170 million in new shares to a subsidiary of Kaisa, increasing the developer’s stake from 24% to 44%. A court in the British Virgin Islands, where Nam Tai is incorporated, later overturned the rights issue.
However, the majority of the proceeds from the rights issue had already been invested in a Credit Suisse fund that had heavy exposure to Greensill, the financial services company that collapsed in early 2021. The fund closed in March 2021 and Nam Tai said “there is no guarantee that we can fully recover our product”.
Then at the end of last year Kaisa – the second most indebted promoter in the international bond markets behind Evergrande – defaulted. As a result, he lost control of his Nam Tai actions.
Deutsche Bank seized Kaisa’s stake in Nam Tai after it defaulted on a loan from the German lender last year, according to documents filed in the United States. Nam Tai’s shares were pledged as collateral for the loan.
This year, Deutsche Bank sold the shares, or around 20% of the company, to Oasis Management, according to people familiar with the deal. Deutsche Bank declined to comment. Oasis said it was “in active dialogue with all parties for a mutually beneficial resolution.”
But even after Kaisa’s stake in Nam Tai was removed, the company continues to complain about her perceived influence. In a statement released in February, he accused Wang, who previously worked directly for Kaisa in Shenzhen, of “conspiring” with a subsidiary of the promoter.
Another person familiar with the situation suggested that Wang is likely to remain in place even after negotiations over the management of the company end.
Kaisa declined to comment.
The challenges for investors in Nam Tai are similar to those faced by creditors of Evergrande, which began missing payments on international bonds in September and is now embroiled in a protracted and opaque restructuring process.
Evergrande’s offshore investors hoped to recoup some of the funds by using subsidiaries that, like Nam Tai, are listed outside mainland China.
But these subsidiaries generally rely on assets and cash flows on the continent. In the case of Nam Tai, a Hong Kong investor who is not involved in the company said he “cannot imagine” how foreign investors can go to China and say, “I am the shareholder , I control the company”.
IsZo points to the advantage of Nam Tai’s relative lack of leverage, unlike the vast leverage that underpins the balance sheets of other developers.
Michael Cricenti, chairman of Nam Tai, said he hoped “to make a lot more investments in China, especially in the Great Bay area, after taking over the PRC subsidiaries”, while Kellogg, who won billions from the sale of the Spear, Leeds and Kellogg brokerage firm in 2000 and board member of Nam Tai, said: “What has happened over the past few months only reinforces my belief that the fight was worth it and that we will win in the end”.
But despite surging last year, the company’s shares have lost nearly 60% of their value so far this year and that’s worth just $165 million. Last week, trading was halted in New York due to “regulatory concerns”.
Earlier this year, Sheehy noted that the stock price “did not reflect the underlying value of real estate.” “I find [this] disconcerting because it is one of the most important real estates in China,” he said.
Additional reporting by Andy Lin in Hong Kong