Kaisa Ploy to Keep Control of Nam Tai Thwarted by BVI Court

An activist investor has notched a win in its running battle for control of Shenzhen-based developer Nam Tai Property, as a court ruled Wednesday that directors tied to mainland group Kaisa had acted improperly in signing off on a private placement that diluted the shareholding of IsZo Capital Management and other minority investors in the company.

In its ruling, the Eastern Caribbean Supreme Court voided the private placement and ordered Nam Tai to hold a special shareholder meeting to decide the fate of the board — two key demands of the shareholder group led by IsZo, a fund manager that owned about 11 percent of the New York-listed company’s shares before the disputed private placement.

The court held that the private placement “was made for an improper purpose” and that Nam Tai’s directors breached their fiduciary duties as they sought to shift the balance of power at the company to Kaisa, which saw its shareholding balloon from 23.9 percent to 43.9 percent after the manoeuvre.

Nam Tai’s NYSE-listed shares, which had plunged in price after the private placement last October, surged 21.4 percent to $11.50 on Wednesday in response to the court’s ruling. IsZo has estimated that Nam Tai’s project portfolio, which consists mostly of business parks in Shenzhen, is worth up to $40 a share.

Appeal Promised

In a press release, Nam Tai vowed to carry on the fight in the “best interests” of the company and all its shareholders.

“Nam Tai Property is extremely disappointed with and surprised by today’s ruling in the case of IsZo Capital versus Nam Tai Property and intends to exercise its right to appeal the decision and seek a stay until the appeal is decided,” the company said.

In its judgement, the court said that evidence presented by the parties supported IsZo’s contention that the private placement was a ploy to boost Kaisa’s stake in Nam Tai to a sufficient level as to block attempts to convene a shareholder meeting, and ultimately to avoid a change in control at the board level.

The presiding justice also called into question the independence of Nam Tai’s independent directors while poking at the company’s governance. “In my judgment, whatever the formal corporate governance status of these directors, in reality they were heavily committed to supporting Kaisa’s de facto control of Nam Tai. I find that the four directors were not, as a matter of fact, independent of Kaisa,” the justice said in the court statement.

IsZo has argued that Nam Tai’s stock is underperforming, that Kaisa cronies on the board and management team wield outsized influence and engage in self-dealing, and that poor decisions were made under former chairman and chief executive Kwok Ying Chi.

Kwok, the brother of Kaisa chairman Kwok Ying-shing, resigned last September amid the shareholder revolt. Among the ex-CEO’s contentious moves was the purchase of a $101 million site for residential development in Dongguan, a transaction that IsZo says consumed more than 80 percent of Nam Tai’s available cash and represented more than half of the company’s market cap at the time.

Come Together

The Eastern Caribbean Supreme Court, which has jurisdiction over the British Virgin Islands, where Nam Tai is registered, has now ordered the company to convene the special shareholder meeting on 26 April, with the gathering providing an opportunity to reshuffle the developer’s board.

IsZo has made publicly available its proposed slate of directors to replace the six it says are too chummy with Kaisa.

Nam Tai, founded in Hong Kong in 1975, started life as an electronics company and evolved into a property developer. Its shares were listed on the NASDAQ in 1988 and moved to the New York Stock Exchange in 2003.

Kaisa Group Holdings became the largest shareholder in Nam Tai with the purchase of a 22.75 percent stake in July 2017. Later that year, Kwok Ying Chi was appointed as an executive director on the Nam Tai board, which over the years came to be dominated by Kaisa-linked figures.

In addition to its battle for control of Nam Tai, the Kwok family, which leads Kaisa, is also fighting to take over Hong Kong asset manager Convoy. And last month Kwok Hiu-ting, a daughter of Kaisa chairman Kwok Ying-shing, bought control of the city’s Sing Tao News Corporation for HK$370 million.