Judge finds 'serious questions' in Shanshui Cement stake deal

A Hong Kong judge has found "serious questions" in state-owned materials company China National Building Material's acquisition of 20 per cent in China Shanshui Cement Group, one of the largest producers of clinker and cement on the mainland.

Hong Kong-listed firm China National Building had in October acquired the stake for HK$1.56 billion in Shanshui Cement, also listed in Hong Kong. A group of six minority shareholders of Shanshui Cement has applied for permission to take legal action in Hong Kong against Shanshui Cement, CNBM, Shanshui chairman Zhang Bin and his father, Shanshui executive director Zhang Caikui.

The application includes an injunction against Shanshui Cement holding an extraordinary general meeting on March 20 to grant stock options to the Zhangs.

The complaints of the applicants include the proposed stock option issue and China National Building investment in Shanshui Cement.

In a document of the Court of First Instance on March 17, Justice Jonathan Harris wrote: "It seems to me that the applicants have demonstrated a basis for suggesting that Zhang Senior engineered the agreement with CNBM for his own reasons rather than simply because he thought it was a good commercial deal. One would expect there to be evidence to show the transaction between CNBM and Shanshui Cement was at arms' length. There is none."

Noting that Shanshui Cement's board of directors approved China National Building's investment on the day it was signed, Harris wrote: "It seems … there is a serious question to be tried as to whether the majority of the board simply rubber-stamped Zhang Senior's decision without any genuine independent consideration of its merits."