The market turnaround is reducing the appetite for privatisations, which earlier this year were a popular but controversial choice for corporate kingpins. Privatisation bids are commonly derided by retail investors as serving the interests of large shareholders who buy out assets at a discount. Nam Tai Electronic & Electrical Products was one of the few successful privatisation bids this year, whereas the high-profile attempt to privatise PCCW was one of the noted failures. The Hong Kong market has gained 64 per cent since March, doubling the valuations of many stocks and reducing investor interest in privatisations, analysts say. Privatisations are usually most popular when stock prices slump, as the company will be taken private at a discount. While timing is crucial, there is a bigger determinant. 'Privatisation ... [is about] whether the price is reasonable,' said Nam Tai chairman Koo Ming-kown of the firm's decision to pay shareholders HK$1.52 a share to take it private. He said the company decided to offer a 160 per cent premium to the closing price before trading was suspended on a failed privatisation bid in February, despite financial advisers suggesting a HK$1 price, to avoid wasting time crucial to turning around the unprofitable company. Nam Tai is a unit of New York-listed Nam Tai Electronics. 'At that point, we saw that the company had negative assets, and our stock price was 57 cents before the trading suspension,' he said, stressing that privatisation was the solution to stop the firm bleeding as factory orders continued to plunge. But it took a second attempt before Nam Tai's privatisation plan came to fruition on July 6, when 90.57 per cent of its shareholders gave their approval. The first attempt secured more than 88 per cent approval - short of the 90 per cent required. The deal cost Nam Tai more than HK$300 million, but Mr Koo stressed it had not eroded the company's financial health and had put it in a better position to restructure a business that lost US$121.93 million last year, compared with the previous profit of US$60.74 million. On Monday, Nam Tai announced Mr Koo had been reappointed as an executive director. He would also be the firm's chief financial officer. The company, whose manufacturing is based on the mainland, has slashed half of its workforce of nearly 10,000 since last year and is mulling how to better consolidate its units to keep operations lean. 'It's about going on to the battlefield light,' said Mr Koo, who predicted the export market would recover only in the third quarter of next year. He described prospects for recovery, at least for the electronics sector, as unclear despite recent rises in the asset markets, because factory orders contradicted the market optimism. Inventory remained piled up, unemployment was rising and, in the US, increasing savings indicated people were worried about their prospects, he said. Yet, the market is not short of liquidity. Surging property prices on the mainland and in Hong Kong have raised alarm bells of a bubble in the making. The Hang Seng and the Shanghai Composite indices have climbed 55 per cent and 60 per cent since the beginning of the year. In Hong Kong, equities have rebounded since March, fed by a strong inflow of funds from developed economies whose own markets are languishing. Daily turnover, averaging less than HK$40 billion, has doubled in the past few weeks to HK$80 billion. Companies often propose to privatise when their stocks are trading at a deep discount to their net asset values or when the controlling shareholders do not see a need to maintain listed status but want to minimise overheads and listing expenses. Sometimes, when a stock falls to a historic low, the controlling shareholders may tender through a scheme of privatisation for all the shares they do not own. If successful, when the market and the prospects for the company improve some time later, they hope to sell shares in the firm again through an initial public offering or a private placement, making a handsome profit in the process. But in a market rebound, small or even institutional investors are reluctant to dispose of their stakes in a company they think will benefit from economic recovery. 'It is really hard to persuade small shareholders to accept the tender in a stock market rally, unless the controlling shareholder is able to pay a sky-high premium,' said Fabian Shin, a managing director at ICBC International. 'I think fewer privatisation transactions will be launched in the second half, given a more stable market environment and better earnings expectations.' Of the nine privatisation bids in the first half of the year, only two succeeded - Nam Tai and Shaw Brothers (Hong Kong) - while three are pending and four others were pulled. Last month, shareholders of China Resources Microelectronics voted down a HK$698.3 million privatisation offer, which came close on the heels of similar failed attempts by Natural Beauty Bio-Technology and Crocodile Garments. None matches the high-profile failure of PCCW's privatisation plan at the end of April. The saga saw the Securities and Futures Commission investigating the poll in which minority shareholders approved the buyout and escalated to the Court of Appeal ruling against the company's offer. Oriental Press Group, Delta Networks and Ming An (Holdings), a non-life insurer, have announced their intention to privatise. As the market continues to pick up steam, it could leave the three companies hanging.