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'Rogue' executive sells chunk of Millennium's Chinese JV assets

Monday 12th April 2010

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A ‘rogue’ executive working for Millennium and Copthorne Hotels NZ's Chinese joint venture partner has unlawfully sold Chinese hotel assets worth US$47.8 million, of which US$16.3 million ($22.7 million) belongs to Millennium, the company says.  

The disposals appear to represent 62% of the joint venture's assets, with only 38% of the group's assets, mainly in Sichuan, still under its control, the hotel group said in a statement.

Managing director B K Chiu says Cheung Ping Kwong, owner of a 20% interest in the company responsible for hotel developments to which the Millennium group is exposed, last week sold interests in two hotels in the Hainan and Dongguan regions by deceit, intimidation, and unlawful use of the company's seals.

The disposals, which Millennium says it will attempt to overturn, occurred last Thursday and Friday, and followed Cheung's dismissal in March from all office-holder roles, and the issuing of new company seals. 

Under Chinese law, company seals, or "chops," are taken to represent the full authority of a company. The removal and misuse of chops in cases of corporate relationship breakdowns is a widely documented risk facing foreign investors in China.

Millennium says Cheung took the company seals and corporate documents of the Hainan Hotel Owning Company, (100%-owned by Idea Valley Group Ltd.) using "unconventional practices, including intimidation and forceful tactics". The seals of another company, which operates the hotel but is not part of the contested sale, were also taken.

On top of that, Cheung arranged disposal of IVGL's 80% holding in a mixed development project in Dongguan province, China, to a close associate.

Cheung had already been removed as chief executive of IVGL in November last year, after failing to meet the conditions of the joint venture, which was established through First Sponsor Capital Ltd in September 2007. 

Millennium owns a 34% stake in FSCL, which in turn owns 75% of Idea Valley Investment Holdings Ltd, of which Cheung's company owns 20%.  IVIHL owns 100% of IVGL, the company which Cheung headed until November last year, when he was removed, and which owned 100% and 80% respectively of the Hainan and Guanggdong developments.

Chui said IVIHL was now completing relevant filings to confirm Cheung's removal from various I-Vale entities, seeking legal advice on the disposals, reporting Cheung's unauthorised actions to various Chinese authorities, and preparing a police report.

"IVIHL is dependent on the assistance and cooperation from the various People's Republic of China governmental authorities and bodies to prevent loss and damage to IVIHL's interests," Chiu said.

The New Zealand hotel-owning group ventured into China in September 2007, saying it had been urged by shareholders to seek higher growth markets, and that the I-Vale opportunity was a unique opportunity to gain exposure to a high-growth area of China.

"We believe that this investment, in the medium to long term, will deliver financial returns which are better than what we could expect to receive if we pursued our current investment policies”, said Chiu at the time.

Today's statement was released to the market after close of trading today.  Millennium shares last traded unchanged at 48 cents.

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