Oung brothers a step closer to cementing control of Paladin

Convertible note issued by majority Paladin shareholder opens door to debt-for-equity swap

PUBLISHED : Monday, 27 October, 2014, 5:19am
UPDATED : Monday, 27 October, 2014, 5:19am

A convicted fraudster and his fugitive brother moved a step closer to cementing their control over Hong Kong listed Paladin through a convertible note offer that values the company at a fraction of its book price.

It is the latest stratagem by rival family claimants already estranged over the alleged misuse of their matriarch's estate and abuse of a paralysed stroke victim's power of attorney document.

A HK$127.2 million secured exchangeable convertible note issued late September by majority Paladin shareholder Cityguard Holdings to British Virgin Island firm Next Level opens the door to a debt-for-equity swap that moves control over Paladin one step further away from competing family members who claim to have been cheated.

Next Level is controlled by brothers Andrew and James Oung Da Ming, sister Margaret Uon, and Anglo Chinese Nominees, as trustees for another BVI entity called Basurto Holdings.

Represented by former Paladin chief executive, Michael Chen Te-kuang, nephew of the Oung brothers, aggrieved family claimants question whether fraud and abuse of stock exchange rules have taken place, charges denied by Stephen Clark, Anglo-Chinese managing director, and adviser to the Oung brothers.

"I certainly do not think either we or our clients are engaging in a fraudulent activity," said Clark, who is also chairman of the Securities and Futures Commission Takeovers and Mergers panel. A highly complex multi-tiered offshore corporate structure masks one of the stock market's more colourful episodes of alleged financial chicanery, which at one point saw rival parties jostling to speak for Paladin via conflicting stock exchange announcements and newspaper advertisements.

The story started in April when a 30 cents-a-share placement by Chen was publicly rebuffed by fellow board member, James Oung Shih-hua, son of James Oung Da Ming, who argued it undervalued the company. An unsolicited offer worth HK$254.6 million was then pitched in July by Gold Seal Holdings, another BVI structure connected to the Oung brothers and Uon, but this was rejected by Paladin's board, which argued the offer was less than a sixth of the firm's net asset value.

Andrew Oung, wanted in Taiwan in connection with a bribery probe, brother James Oung, a former Taiwanese legislator jailed for stock market fraud, and sister Uon, are all offspring of Taiwanese businessman Oung Ming-chang, the founder of Hualon Group, once one of Taiwan's largest conglomerates. A fourth sibling is Chen's mother and former Hong Kong socialite, Lilian Oung Hsiao-mei. Bed ridden and reportedly mentality incapacitated since a series of strokes in 2011, Lilian Oung was once Paladin chairwoman and held control of the company alongside the estate of her deceased mother through a Paladin stock holding vehicle named Five Star Investments.

In a series of moves contested by Chen and his supporters, the Paladin shares inside Five Star were transferred mid July to Cityguard Holdings, and at the same time, control of Five Star was switched to Basurto.

Chen was later pushed out of Paladin and is now mulling further legal action, said a family source. He suspects that his uncles and aunt have somehow manipulated his mother's shareholding, said the source, possibly by using a power of attorney document signed soon after her strokes - though this is contested by Clark.

The South China Morning Post has seen letters sent by Chen's advisers to Anglo-Chinese, the Hong Kong Exchanges and Clearing, and the SFC questioning the stock transfer, the possible misuse of the power of attorney document, and the suitability of Andrew Oung to act as a Paladin "shadow director".