New World China Privatisation Trips and Fails Over Cayman Law

New World Development’s plans to take its China subsidiary private failed this week when shareholders representing less than two-tenths of a percent of the company’s stock foiled the efforts of the company’s billionaire owner.

Although jewellry magnate Cheng Yu Tung’s New World Development owns 69.1 percent of New World China Land, the Hong Kong-listed firm was blocked from acquiring its China subsidiary due to laws in the Cayman Islands, where New World China is domiciled. Under the rules of the popular tax haven, voting in shareholder meetings is conducted on a headcount basis, with each shareholder getting one vote, regardless of the number or shares he or she owns.

New World China Land Shares Dive

According to a report in the South China Morning Post, while 494 investors voted against the proposed buyout by the Hong Kong parent company, and only 255 for it, that majority headcount represented only 0.16 percent of the company’s shares.

Following the failed privatisation, shares in New World China Land dropped nearly 17 percent on the Hong Kong stock exchange.

Offer by New World Development Fails Despite Premium

Cheng, who according to a recent Forbes survey, is Hong Kong’s fifth-richest man, was offering shareholders a premium of 32 percent for their shares over the price of the stock before the offer was made. The billionaire owner of the successful Chow Tai Fook chain of jewellry stores had said earlier that his company was making the privatisation offer because it saw its China stock as chronically undervalued.

Evidently the majority of the company’s shareholders shared Cheng’s sentiments as they rejected the 32 percent premium offer.

According to New World China’s website, the company has developed 36 major projects in China in 22 cities, and its portfolio spans residential, office retail and hotel projects. However, some analysts now predict that the parent company will focus more resources on projects in Hong Kong and other parts of the region now that it has been unable to reclaim its China branch.