A dispute between a consortium led by Shanghai Zendai Property and Fosun International has erupted after Shanghai Zendai sold its shares in a jointly-held prime Shanghai site to another developer.
Fosun International yesterday released an announcement saying that it was surprised by the proposed stake transfer of the Bund 8-11 site in Shanghai to Soho China by Shanghai Zendai and its consortium partner, Greentown China Holdings.
The Bund 8-11 site became the most expensive site in Shanghai last year when it was sold for 9.22 billion yuan (HK$11.24 billion) at a land auction.
Fosun, which owned 50 per cent of the site, said it enjoyed pre-emptive rights to buy the remaining shares owned by the consortium and, if necessary, would take legal action to defend its interest.
Shanghai Zendai defended its deal with Soho China, claiming it did not constitute a direct transfer of the equity interest in the project company that owned the site, nor did it breach Fosun's pre-emptive rights.
The company had taken into account the commercial terms offered by other potential investors, including Fosun, when it considered the proposed deal.
Under the agreement with Soho, Shanghai Zendai and Greentown sold their stakes of two subsidiaries that held shares in the company that owned the site, for 4 billion yuan.
Zhang Gin, a lawyer at Dacheng Law Offices, said Fosun could file a court action to invalidate the transaction if Zendai sold the project company directly.
'However, the current proposed deal could proceed as Zendai is selling the subsidiaries that hold the shares of the project company,' he said. 'That's the loophole.'
Alan Jin, regional property researcher at Mizuho Securities Asia, said it was unlikely Fosun and Zendai would settle the dispute in court.
'The awkward 50:50 ownership structure means both of them will not compromise easily, which is a concern for the project and for both Soho China and Fosun,' Jin said. 'Soho China may bear a more negative impact than Fosun, which is a larger company where property development is only part of its many businesses.'
Standard & Poor's Ratings Services yesterday said that its rating and outlook on Zendai were not affected by the deal. The deal, if concluded, would strengthen Zendai's liquidity, Standard & Poors said. The 2.96 billion yuan raised in the deal would reduce refinancing risks and significantly lower leverage if is was used to repay debt.
Fosun International's shares rose 0.25 per cent to HK$4.06 yesterday, while Soho China's shares climbed 0.98 per cent to HK$5.17.