By Chen Zhe (陳哲)
Issue 597, Dec 3, 2012
Property, page 41
Translated by Dou Yiping
Original article: [Chinese]

As the saws are buzzing and cranes still swinging to construct the Bund Financial Center (BFC), two property magnates are engaged in a legal dispute that will determine who controls the multi-billion yuan project.

On Dec 29, 2011, SOHO China (SOHO中國) announced that it was going to buy half of the BFC project for 4 billion yuan from the prior shareholders Zendai Group (證大) and China Greentown (綠城). The move triggered strong opposition from Fosun (復(fù)星), which holds the other half of the shares.

Fosun says it had preemptive acquisition rights for the shares as the principal shareholder, so it sued SOHO. However, SOHO bypassed Fosun's preemptive right by acquiring the BFC project directly from the parent companies of the two shareholders.

On Nov 29 the case was brought before the Shanghai No. 1 Intermediate People's Court. During proceedings, there were reportedly heated tit-for-tat exchanges between Fosun President Guo Guangchang (郭廣昌) and SOHO President Pan Shiyi (潘石屹), with the judge warning them to watch their tone at one point.

The court has yet to give a final judgment. Because of the unprecedented nature and scope of the case, there’s no relevant precedent to work from.

In February of 2010, Zendai won the property rights for the project with a record 9.22 billion yuan bid. But the sum was required to be paid off within eight months. “Due to the shortage of capital, Zendai asked me for help with its financing,” Guo said.

As a shareholder in Zendai, Fosun was glad to be a minority shareholder in the BFC project, which it had regarded as very promising from the beginning. By agreeing to pay 60 percent of the loan, which was about 2.7 billion yuan, Fosun was listed as a shareholder with a 30 percent stake.

In September, 2010, Fosun paid a second installment to Zendai and increased its stake to 50 percent, making it the principal shareholder. However, even after these deals, Fosun wasn’t the one Zendai turned to when it wanted to unload the rest of its shares.

“I know Dai Zhikang (戴志康, the president of Zendai) personally,” Guo said. “So I told him it was totally okay to look for other investors so that Zendai could sell the stakes at a good price.”

Guo soon heard though that Zendai would sell its entire stake to SOHO, so he met Pan to negotiate. He told Pan that Fosun would like to lead the project, even it meant buying more shares. But Pan insisted in taking 50 percent. That’s when Fosun decided to bring up its preemptive right.

In court, Fosun stated that its contract with Zendai prevented one party from transferring the shares without approval of the other party. But SOHO says that the contract doesn't cover what happened in this case.

Before signing the contract with SOHO, Zendai sent Fosun an enquiry about selling the stake for a price of 4.25 billion yuan. Fosun said that they'd like to negotiate that price, but through formal procedures. However, two days later, SOHO got the shares for 4 billion yuan.

“On Dec 28, Zendai announced to its board of directors that it would sell its stake to SOHO,” Guo said. “If we hadn’t sent our board members that day, we wouldn’t have known that.”

The next day at 2 am Guo called Pan to negotiate, but Pan refused. “Pan said he wasn’t involved yet, so there’s nothing to talk about,” Guo said. “I thought that since we were going to get married, we could at least talk about the family rules. Pan’s logic was to get the marriage certificate first and then talk about the rules.”

Pan had a strategy to bypass Fosun’s preemptive right. After signing the contract, Pan went to Guo’s office to talk about the cooperation and showed goodwill. Then he talked about the legal preparations saying, “We’ve done enough practice in the sandbox.”

“Afterwards, I realized what he meant by ‘practice in the sandbox,’” Guo said. “He was talking about bypassing my preemptive right. He had it all figured out from the first day. Good for him.”

It wasn’t out of the question to go 50-50, but the more Guo and Pan discussed the project, the more Guo realized how much their opinions differed. That's why he invoked the preemptive right.

Although there was no precedent, Guo is optimistic about the case. He said SOHO convinced the two shareholders to divest from their assets, which is illegal.

When talking about Pan, Guo says he respects him very much. He says if Pan were to do the project alone, he could do it wonderfully. "We did so much and took so many mortgages on the project," Guo said, "Pan got involved quite late, claiming to be my friend but insisting on taking 50 percent instead of compromising to be a minority shareholder."

Guo called Pan “sharp”, “tough” and “sophisticated,” but he said he would never do things in the way Pan did.