Shares in New World China Land plunged 16.93 per cent yesterday after shareholders vetoed the privatisation offer proposed by its parent firm, New World Development. The stock resumed trading yesterday and finished the day at a three-month low of HK$5.30, down from HK$6.38 last Friday, after hitting a low of HK$5 in the morning. In contrast, shares of New World Development fell just 1.12 per cent to close at HK$8.80 yesterday. New World Development, which owns 69.1 per cent of New World China Land, failed to gain shareholder support at a meeting on Monday after 494 investors voted against the buyout proposal, 255 in favour of it. The 494 investors represented only a 0.16 per cent interest in the company. Henry Cheng Kar-shun, the chairman of both firms, said at yesterday's results announcement for Chow Tai Fook Jewellery Group that he was surprised by the result. "Since our company is domiciled in the Cayman Islands, we still have to follow the headcount rule (which gives each shareholder an equal vote, irrespective of the size of their shareholding)," he said. "The rule is not reasonable. Even if most shareholders support the buyout proposal, it still could not win approval under the rule." He said the rule should be cancelled. Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, said Hong Kong had abolished the headcount rule but other markets including the Cayman Islands retained it. "We would wish other jurisdictions would consider following Hong Kong to change the law to abolish the headcount rule and replace it with the no-objection rule," Wong said. "Hong Kong's New Companies Ordinance [which came into effect in March] offers more flexibility for the privatisation of a listed company, while at the same time it can still protect small shareholders' rights. The headcount rule is not fair and outdated and we always support its abolition." Meanwhile, UBS said it expected that New World Development management would focus on deploying more resources in Hong Kong after failing to take New World China Land private. It said it would be better for the company because the Hong Kong property market had a more favourable supply and demand balance for developers than the mainland market. Eric Wong, head of property consultant Bricks & Mortar Management, said: "New World Development should acquire quality mainland developers to reduce their investment risk and lower the cost for their development in mainland," Since New World Development had raised HK$13.3 billion from a rights issue originally designed to finance the privatisation, Morgan Stanley said in a report yesterday that its balance sheet had been improved. Its gearing ratio had been cut from 35 per cent at the end of last year to 26 per cent, and might improve further following this month's launch of the Grand Austin residential project in Tsim Sha Tsui. Morgan Stanley said the low gearing ratio could help the New World Group participate in land auctions. However, the valuation of New World China Land might continue to come under pressure, limiting New World Development's upside potential, it said, setting an underweight rating for New World Development.