Reflecting On Corporate Finance
New World China Land – second attempt at privatisation
15 Apr 2016

New World Development (stock code: 17) announced in January its plan to privatise its 69% owned, listed subsidiary New World China Land (stock code: 917) by way of a voluntary general offer. This is different from the previous attempt at privatisation in May 2014, where a scheme of arrangement was used. The previous attempt failed because a majority of the voting disinterested shareholders (not: number of shares) voted against it, on the basis of the Victorian-era “headcount test” which is still applicable in the Cayman Islands (where NWCL is incorporated). This time NWD’s privatisation attempt of NWCL will not be subject to it. However, 90% of NWCL’s disinterested shareholders would need to take up the offer in order to effect privatisation under the Hong Kong Takeovers Code. On the final closing date, there were over 98% of acceptances. Pending regulatory procedures, withdrawal of listing is scheduled to take place in August 2016.

Key take-aways:

  • For Bermuda and Cayman registered companies, privatisation via a general offer may be less risky than by way of a scheme of arrangement, as the “headcount test” (under certain jurisdictions), which may offer a small group of shareholders the chance to block the transaction, is not applicable. Companies incorporated in Hong Kong are no longer subject to the “headcount test”.
  • On the other hand, whereas under a scheme of arrangement “only” 75% of scheme shareholders need to vote for the deal, under a general offer 90% of disinterested shareholders need to accept the offer to effect privatisation through compulsory acquisition of the remaining shares.
  • In both cases, if more than 10% of disinterested shareholders vote against the deal, the privatisation would not go through.
  • Our research shows that all property company privatisations in the Hong Kong market in the last ten years, save one, have been conducted by way of a scheme of arrangement. Of those, two-third failed due to the “headcount test” – making a considered choice on how to structure a privatisation is one of the keys to its success.
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