Retired judge buys into Shanghai Merchants

Property tycoon Chau Ching-ngai struck a deal to sell his 63.19 per cent stake in Shanghai Merchants Holdings to a 35-year-old retired Shenzhen judge for $11.5 million while in Chinese custody.

The transaction has triggered a mandatory cash offer, with shareholders being offered a price equivalent to an 83 per cent discount on the company's shares. Prior to the company's stock being suspended in June, Shanghai Merchants had a market capitalisation of $107.38 million.

Chau has been in detention on the mainland since May in connection with a corruption investigation related to the Shanghai property market and a number of questionable loans.

A $1.7 billion credit line granted to Chau's private flagship, New Nongkai Global Investments, also came under scrutiny at Bank of China Hong Kong, with the bank attempting to claw back $741 million that has not been repaid.

The findings of an investigation into the bank's credit approval system are to be revealed today.

As a result of the probe into Chau's affairs, two of his listed companies, Shanghai Land and Shanghai Merchants Holdings, were put into receivership.

Chau had a 63.19 per cent stake in Shanghai Merchants - which trades metals and fabrics - through his wholly owned company, Angel Field.

According to a company statement, retired Shenzhen judge Yue Jialin paid $11.5 million in cash for the stake after Chau obtained consent from Sun Hung Kai Investment Services, with which he has an outstanding share mortgage.

Sun Hung Kai Investment had obtained a court injunction in June restraining Chau and his wife from 'doing anything with the shares in Shanghai Merchants' that would jeopardise the share value.

The broker had sued the couple for an outstanding loan and interest of $35.7 million they had guaranteed.

The investment adviser is now making the mandatory cash offer to shareholders on behalf of Mr Yue's British Virgin Islands company, Profit Harbour Investments, which he set up in July.

Mr Yue served as a judge in Shenzhen's Luohu district between 1989 and 1993, after which he worked for the Trade Development Council in Shenzhen, where his major duty was to scrutinise Shenzhen branch offices of foreign investors.

He is currently a director of Shenzhen Hai Jia Hua Consulting, which provides consultancy services to state-owned enterprises.

The deal struck with Chau puts Shanghai Merchants' total issued share value at $18.21 million. According to the company's results last year, it had bank borrowings of just $12.9 million and a cash reserve of $23 million.