Company to Sue HSHK for Contract Breach

On 15 Oct 2008, the company and Shenzhen Shenbao Industrial Co., Ltd. (SSI), of which the company is the largest shareholder, both announced they would file a lawsuit against Huike System (Hong Kong) Co., Ltd. (HSHK) over an equity transfer contract dispute. The action signifies a breakdown in their negotiations with HSHK.

On 12 Oct 2007, the company and Shenzhen Investment Holdings Co., Ltd., the second-largest shareholder of SSI, jointly signed an equity transfer agreement with HSHK to sell 76.41 mln shares of SSI, equal to a 42% stake, at a price of RMB 8.63 per share. Since it was the first transfer of a state-owned stake in compliance with newly published stake transfer regulations, SSI's share price reached its maximum intraday limit eight times after trading resumed. (It is worth noting that HSHK is backed by Li Jiacheng.)

Nevertheless, on 27 Sept 2008, SSI announced that HSHK has submitted a request to terminate the stake transfer agreement on grounds that relevant laws and regulations have been revised.

Insiders said that although the equity transfer has yet to be approved by the Ministry of Commerce of the PRC, there are no revised laws or regulations that could pose as obstacles to the transfer since the date the agreement was signed. The real reason for the termination of the equity transfer agreement could be that SSI's share price has dropped to lower than the previously agreed price on the secondary market. Based on the closing price of SSI's shares on 26 Sept 2008, RMB 7.03, HSHK has already suffered losses of RMB 120 mln under the terms of the agreement.


Source: National Business Daily

Date: 15 Oct 2008

CN01/NW/DM/NK/KM