Red chip Shanghai Industrial Holdings (SIH) has buckled under market pressure and scrapped its controversial $880 million purchase of a Hong Kong hotel from its parent. Fund managers had criticised the deal as too expensive and had threatened to vote it down at a shareholders' meeting on Friday. 'This is a lesson for us, especially on how to treat minority shareholders,' SIH chairman Cai Laixing said. He said the U-turn had been made 'in the light of different market views regarding the Hong Kong hotel sector'. The company will no longer buy the South Pacific Hotel in Hong Kong but will go ahead with its purchase of the Shanghai SIIC South Pacific Hotel in Shanghai, which will be renamed the Four Seasons Hotel. Friday's extraordinary general meeting, called to seek minority shareholders' approval for the purchases, has been cancelled. Mr Cai said the company had learned the importance of 'communicating with' and 'respecting' minority shareholders in revising the plan. For three weeks, SIH had been lobbying fund managers to support the $1.47 billion takeover of the two hotels from parent Shanghai Industrial Investment (Holdings) Co (SIIC). SIH's institutional investors cried foul after the company late last month said it was buying the two hotels with the Hong Kong hotel priced at a demanding multiple of 20 times next year's pre-tax earnings. Fund managers believed the deal was being used to bail out cash-strapped SIIC, the unlisted Hong Kong window company of the Shanghai municipal government, at the expense of other shareholders. Mr Cai said SIH had decided to revise the acquisition plan at a board meeting yesterday morning. The company had denied any change would be made to its plan last Thursday. SIH had consulted 'investors, social elite and professionals', resulting in the about face. The change was hailed by the stock market yesterday, with SIH shares rising 35 cents, or 2 per cent, to $16.5 in a falling market. 'The price rise has illustrated that the new proposal better reflects the opinions of minority shareholders,' the SIH chairman said. But the revision would stall SIH's plans to expand in the hotel and tourism industry, designated as one of its six core areas of operation, Mr Cai said. He refused to say whether the Shanghai hotel would be acquired at the terms agreed earlier. SIH had said it would pay $596.75 million for a 96.76 per cent stake. 'Further details, including letters from the independent board committee and the independent financial adviser and the valuation report, together with the notice of an extraordinary general meeting, will be included in another circular to shareholders in due course,' SIH said. Shanghai SIIC South Pacific Hotel, which will be managed by the Four Seasons Group, will contribute to SIH's bottom line only in two years. It opens for operation in July 2000. Nikko Global Asset Management chief investment officer John Lai welcomed the SIH move. 'Any change shows the management is quite good in responding to investors' concern, which is that any such asset injection should be at fair treatment to minority shareholders,' he said.