(Yicai Global) Dec. 28 -- Chemical products maker Lafang China has abandoned plans to buy a 51 percent stake in cosmetics producer Shanghai Jinjia International Trade after shareholders rejected the proposal.

Shareholders were unhappy with repurposing funds raised during the Guangdong province-based firm's initial public offering, it said in a statement. The money will go toward building a marketing network and research and development center as originally planned, it added.

Lafang announced on Nov. 30 that it planned to change the purpose of capital raised during the IPO to buy a majority stake in Jinjia for CNY800 million (USD117 million).  The valuation sparked controversy given the target's low profitability and some suggested that the two companies were affiliated.

The Shanghai Stock Exchange also required Lafang to detail how profitable Jinjia was in an inquiry letter sent the same day as the statement. Lafang responded 15 days later, citing promising prospects for the cosmetics and cross-border e-commerce sector, in which Jinjia is involved.

Lafang positions itself as an "international brand operation and management company", Vice President Zhang Chen told media at the time. The firm, founded in 2001, is undergoing a transition phase. It recently acquired two we-media firms for cosmetics and women to break into content marketing: Shuqian Baibao Information Technology and Guangzhou Mizhuang Information Technology.

People are also questioning the company's real capital needs, suggesting the company glossed up investment plans to raise capital in its 2017 IPO but has continually put off the projects and is sitting on the cash.

The firm initiated both the marketing network and R&D center in 2014 and was supposed to complete them within three years, but neither has been completed to date. Lafang said this year that the two tasks would be put off for another year.

Editor: Jame Boynton