Hong Kong tycoon slams Shaftesbury investment strategy

Shaftesbury is facing fresh pressure from Hong Kong billionaire Samuel Tak Lee to respond to concerns over recent investments, as well as allegations over its share placing last December. The tycoon’s companies, Orosi and Pel, own a combined 26.15% of Shaftesbury – making him the largest shareholder in the Chinatown and Carnaby Street owner. This stake, built up since 2014, has long prompted speculation that Lee plans to take over the company. Lee’s lawyers sent a letter dated 26 November, seen by EG, to Shaftesbury’s legal advisers, accusing the directors of breaching their fiduciary duties. Shaftesbury said it had made repeated attempts to engage directly with Lee but he had turned them down. The document alleges that “it is now apparent” that Shaftesbury’s directors attempted to “alter the constitutional balance” of the company when it raised £265m in its share placing on 6 December 2017. It claims: “This was an illegitimate and improper exercise of the powers conferred on the directors to conduct the placing, and, accordingly, the directors were in breach of their fiduciary duty.” In the letter, Lee’s lawyers accuse  Shaftesbury of issuing the placement in order to block any future takeover attempts; increase the stakes of other shareholders; or reduce Lee’s portion of the company. They claim Norges Bank Investment Management, the second-largest shareholder in the firm, was  given “significant advance notice” of the fundraising, as well as the opportunity to gain a minimum of 50% of the new shares issued, in return for bidding for 100% of them. Lee’s advisers allege this was “an illegitimate and improper exercise of the powers conferred on the directors to conduct the placing”. Norges has increased its shareholding in Shaftesbury from 12.7% after the December placement in 2017 to just over 23% to date, having raised it twice last month alone. In February, Norges acquired Invesco’s 8.2% stake in Shaftesbury for £234m. Recent acquisitions The letter also details Lee’s concerns regarding Shaftesbury’s approach to financing new acquisitions, specifically in relation to its gearing, which Lee’s lawyers argue bears “no relation” to the landlord’s strategy. “On the evidence of the placing, the directors improperly called on Shaftesbury’s shareholders to increase available funds or transactions that ought to have been (substantially) funded by debt,” the letter alleges. Property purchases made in recent months were alleged to have “diminished the value of the overall portfolio”. These included the acquisition of six buildings in Neal Street last December for £24.6m, or £4,730 per sq ft, at “almost three times more” than the average value of £1,763 per sq ft for its other Covent Garden assets. The letter claims Shaftesbury paid “over the odds” for investments that could not be “credibly justified as strategic acquisitions” and appeared to be “neither in the best interests of Shaftesbury nor in accordance with the care and skill to be expected of the directors”. It also questions the landlord’s letting model and estate management strategy, which it claims “does not prioritise commercial office tenants” and fails to “effectively realise the potential value of Shaftesbury’s portfolio”. Taking the firm’s “executive decisions” and “performance more generally” into account, it also outlines “considerable reservations” regarding remuneration paid to Shaftesbury’s management team, which it claims is “at least 50% too high”. December deadline Shaftesbury has been asked to respond to Lee’s allegations by 21 December, so that it can “take any necessary action” ahead of the company’s annual general meeting in February. “Our client will take all necessary steps to deal with further actions or omissions on the part of Shaftesbury’s directors which materially dilute his shareholding or otherwise damage its value in any way,” Lee’s advisers add. A spokesman for Shaftesbury said: “The board of Shaftesbury confirms that it has received a further letter from Mr Samuel Tak Lee’s legal advisers, the contents of which are confidential. The board is consulting with its own legal advisers on the matter, and will respond to the letter in due course. Since he became a shareholder, Mr Lee has refused all invitations to meet or engage directly with the board of Shaftesbury.” During the summer, Lee submitted a pre-action application for disclosure of documents in claims relating to the placing. However, a judge declined to make an order, ruling that there had been a lack of detailed discussions between the parties on the potentially “heavy and burdensome” scope of disclosure. A rocky history The correspondence is the latest development in a turbulent relationship between Lee and Shaftesbury. During the last AGM in February, the tycoon voted against resolutions that would have allowed the landlord to issue new equity more freely. In 2015, when Lee owned just 3.9% of the company, he made a symbolic 888p offer for a 9.3% share at a mere 2.1% premium to the share price, which was dismissed out of hand.   To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette