China Resources Power

Fresh lawsuit against China Resources Power looms

Renewed action by minority shareholders hinges on funds for legal case, keeping the pressure on the mainland energy giant over coal mine deals

PUBLISHED : Monday, 05 May, 2014, 5:38am
UPDATED : Monday, 05 May, 2014, 6:37am

Minority shareholders of China Resources Power Holdings (CRP) plan a fresh lawsuit against the firm's directors if they can raise sufficient funds, sources close to the case told the South China Morning Post.

The sources said these shareholders - who withdrew their lawsuit in January - are negotiating the amount of court fees payable by them for the previous round of court hearings, and do not rule out initiating a new lawsuit against the directors if they can raise sufficient funds.

These shareholders had alleged the directors had breached fiduciary duties in the acquisition of major coal mines and related assets in 2010. But even if the suit is not relaunched, investors will look to CRP's management in coming months for answers on whether a joint venture led by it will complete the troubled acquisition of 80 per cent of three coal mines and related assets for 7.9 billion yuan (HK$9.9 billion) from Shanxi Jinye Coking Coal.

The joint venture, known as China Resources Taiyuan, was formed in mid-2010 for the acquisition. It also agreed to assume 1.37 billion yuan of debt owed by companies owning the assets, according to court documents.

It is 49 per cent owned by CRP's indirectly held subsidiary Shanxi China Resources Liansheng Energy Investment (CR Liansheng), 31 per cent by Citic Trust - a unit of state-owned conglomerate Citic Group - and 20 per cent by Shanxi Jinye, owned by businessman Zhang Xinmin.

The venture had paid 4.2 billion yuan, court documents showed, implying 3.7 billion yuan remained outstanding. The acquisition could not be completed due to delays by the Shanxi government in renewing expired mining rights for the three mines.

The minority shareholders argued in the lawsuit that the joint venture - led by CRP - should have sought to cancel the deal earlier and claim a 20 per cent penalty payment as allowed under the terms of the acquisition agreement.

CRP's spokesman did not respond to a query as to whether CRP and its partners still intended to complete the assets' acquisition, and whether its completion was pending the obtaining of valid mining rights for two of the three mines.

Analysts said CRP may have to book some asset write-downs, given coal prices have been falling precipitously since late 2011, resulting in widespread losses among the nation's miners.

Sanford Bernstein senior analyst Michael Parker said any impairment would be determined by CRP management and its auditors, based on the assets' current fair value and the acquisition price.

According to CRP's 2012 annual report, its stake in the joint venture had a "carrying value" of HK$1.93 billion at the end of 2012, from HK$2.32 billion a year earlier. No disclosure was made for the value as of the end of last year.

Its annual report said impairments in mining and exploration rights would be booked if they have expired and are not expected to be renewed, if "substantive" expenditure on future exploration and evaluation of resources is not planned, or if no commercially viable quantities of resources were discovered.

Mainland journalist Wang Wenzhi last July accused CRP's former chairman Song Lin of being the mastermind behind its overpaying for the assets to the tune of five billion yuan.

The five billion yuan was worked out from the 5.2 billion yuan offer price by state-owned Datong Coal for 100 per cent of the same assets in September 2009, a few months before CRP's and partner Citic Trust's decision to pay 7.9 billion yuan for 80 per cent of the assets. This implied CRP's valuation of 9.9 billion yuan for a 100 per cent stake was almost double that of Datong, Wang claimed. Datong's spokesman would not confirm the offer price, saying the official responsible for the deal had left the firm.

CRP denied any wrong-doing in an announcement last July, saying its purchase price was less than the value appraised by an independent professional valuer.

The Communist Party's Central Commission for Discipline Inspection said on April 17 it was investigating Song. He was removed the next day from his post as chairman of China Resources (Holdings), parent of CRP.

An analyst covering CRP said any impairment from the troubled acquisition would be unlikely to have a major impact on the firm, since the assets' carrying value on CRP's book was not big relative to its equity value of HK$65 billion at the end of last year and its net profit of HK$11 billion yuan last year.