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Note:
I have covered Nam Tai Property Inc. (OTC:NTPIF) previously, so investors should view this as an update to my earlier articles on the company.
Since the beginning of 2021, shares of Shenzhen-based real estate developer Nam Tai Property Inc. or “Nam Tai” have experienced a wild ride after a successful activist investor campaign appeared to have freed the company from the clutches of much larger peer Kaisa Group (“Kaisa”).
After rallying by more than 600% at its peak in June 2021, the downturn in the Chinese real estate market started to impact the stock price in the second half of 2021.
Things got worse after Deutsche Bank AG (DB) foreclosed on ailing Kaisa Group’s 23.9% stake in the company in December 2021.
In January 2022, shares took another hit after the company alleged its former CEO, Jiabiao Wang, having “obstructed an orderly handover of business assets in mainland China” by preventing the new board from accessing the company’s and its subsidiaries’ business licenses, corporate seals (also known as chops) and bank accounts
The issue required the new board of directors to secure up to $40 million in emergency financing from some of its largest shareholders at that time, activist investor IsZo Capital Management or “IsZo” (16.8%) and IAT Insurance Group or “IAT” (14.7%), a company controlled by billionaire Peter Kellogg, also a long-term shareholder (3.63%) and non-executive director of Nam Tai.
In April 2022, activist investor Oasis Management acquired approximately 20% of the company’s shares from Deutsche Bank AG and stated to be in “active dialogue with all parties for a mutually beneficial resolution“.
In May 2022, the NYSE halted trading in the company’s common shares due to “regulatory concerns about the Company’s lack of direct control over the Company’s chops“.
In November 2022, the NYSE announced its decision to delist the company’s common shares due to ongoing regulatory filing delinquencies.
Shortly thereafter, the shares commenced trading on the OTC Expert Market under the symbol OTC:NTPIF.
Please note that the Expert Market represents the lowest tier in the OTC markets with retail investors being precluded from participation.
Trading is usually limited to broker-dealers, institutions and other sophisticated investors.
After a six-month trading halt, shares finished their first week on the OTC Expert Market at $2.25, down almost 50% from the last closing price on the NYSE in May and stayed at depressed levels until last month.
At the end of March, the company provided a litigation update and disclosed that available cash on hand was down to just $2.2 million.
In early April, Nam Tai Property disclosed a highly favorable arbitration award (emphasis added by author):
As previously disclosed, in October 2020, the Company entered into a securities purchase agreement (the “2020 PIPE”) with Greater Sail Ltd. (“GSL”), a wholly owned subsidiary of Kaisa Group Holdings Limited, through which the Company issued, and GSL purchased, 16,051,219 shares (…) for US $146.9 million. (…)
That same month in October 2020, one of the Company’s shareholders, IsZo Capital LP (“IsZo”), asked the British Virgin Islands Commercial Court in the Eastern Caribbean Supreme Court (the “BVI Court”) to set aside the 2020 PIPE. In March 2021, the BVI Court voided the 2020 PIPE.
Immediately thereafter, in March 2021, GSL initiated an international arbitration against the Company asking that the Company be ordered to reimburse GSL the US $146.9 million that GSL paid under the now void 2020 PIPE. The proceeds from the 2020 PIPE are now held in an account at Credit Suisse (the “CS Account”), where US $89 million of the original proceeds remain. (…)
On April 6, 2023, the arbitrator issued a partial award, dismissing all of GSL’s claims against the Company. The arbitrator also accepted the Company’s counterclaims against GSL for costs expended on the 2020 PIPE, and the legal costs relating to IsZo’s proceedings to void the 2020 PIPE. The arbitrator reserved for his final award quantification of the Company’s damages, costs, and interest. The arbitration was seated in Hong Kong and subject to the laws of Hong Kong. The Company does not yet have access to the funds in the CS Account and cannot accurately estimate at this time when it will be able to access such funds.
Unfortunately, the legal battle with Kaisa / Greater Sail is likely to continue for the time being:
On April 20, 2023, GSL initiated proceedings before the Hong Kong Court to have the arbitrator’s partial award set aside.
Further, on April 20, 2023, GSL filed two additional applications before the Hong Kong Court. The first application requested that the Hong Kong Court maintain its April 29, 2021 order enforcing the arbitrator’s interim preservation order. The second application requested that the Hong Kong Court grant a new freezing order preventing the Company from dissipating its assets, including amounts held by Triumph in its Hong Kong Credit Suisse account, until GSL’s aforementioned application to set aside the arbitrator’s award is determined.
The company also raised an aggregate $15.4 million in new capital from the sale of approximately 8.8 million shares to four large shareholders:
Regulatory Filing
Nam Tai issued another 3.3 million shares to amend terms and reduce outstanding principal under promissory notes held by IAT and IsZo.
As a result, outstanding shares have increased from 39.2 million disclosed in the company’s 2020 annual report on form 20-F to 55.6 million as of today.
Last week, the company announced a major step towards gaining control of Nam Tai’s mainland China assets (emphasis added by author):
Nam Tai Property Inc. (…) today announced that its reconstituted Board of Directors and new management team have lawfully obtained the corporate chops and business licenses for all of the Company’s subsidiaries in the People’s Republic of China. (…)
The Company is now in the process of registering its Chief Executive Officer, Yu Chunhua, as the Legal Representative for its subsidiaries with the Administration for Market Regulation of the PRC.
Mr. Yu commented:
“Our reconstituted Board and new leadership team are pleased to have obtained the corporate chops and business licenses in a lawful, orderly manner. We are now in a better position to build a broader local presence, invest more in our employees and uphold local stability. We look forward to working with all local constituents, including policymakers, to enact a smooth transition with the former management team and find long-term investment opportunities in Shenzhen and elsewhere across mainland China.”
The Company is working to promptly register Mr. Yu as the Legal Representative for its subsidiaries with the Administration for Market Regulation, but it cannot make assurances as to how long it will take to secure registration. Unfortunately, Kaisa Group Holdings Limited is continuing its multi-year campaign to destabilize local stability and illegally seize control of Nam Tai’s assets. The registration of Mr. Yu as the Legal Representative is important to obtain access to all bank accounts, books and records, and resources of the Company’s subsidiaries.
So far, the company has not been successful to register its new CEO for all of its on-shore subsidiaries and accordingly has yet to gain full control of these entities including their respective books and records.
Bottom Line
While important progress has been made over the past couple of months, Nam Tai Property Inc. continues to fight a host of legal battles with no near-term end in sight.
Please note that litigation is not limited to Kaisa subsidiaries and affiliates as the company has also been served with a number of material claims related to construction contracts entered in previous years.
Investors should hope for the company to gain sufficient access to its mainland China bank accounts as soon as possible in order to avoid additional dilution going forward.
Please note that retail investors are likely to remain precluded from trading the company’s shares for the time being as moving to a higher OTC segment or re-list on the NYSE would require Nam Tai Property Inc. to become current in its regulatory filings which is not going to happen anytime soon.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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