The Millennium & Copthorne annual meeting, which was held in Auckland on Wednesday, was a remarkable event as directors struggled to explain how one of its hotels has been stolen.
That's right; a newly acquired China hotel has been stolen, it hasn't been destroyed or suffered a big write down in value.
The company's directors were hugely embarrassed as they tried to explain a botch-up that was somewhat similar to a Nigerian email scam.
This story goes back to August 1985 when Millennium & Copthorne, then known as Euro-National, was listed on the NZX after the takeover of Pacer Corporation.
The company, controlled by Rod Petricevic, was one of the high flyers of the 1980s sharemarket boom, with its share price surging from $1.90 after the Pacer deal to $8.20 in 1986.
It plunged to just 8c after the October 1987 crash, mainly because of its complex entanglement with three other failed companies: Judge Corporation, Renouf Corporation and Kupe, now known as CDL Investments.
Euro-National managed to extract $31 million cash from the unwinding of the Judge/Renouf/Kupe structure and in November 1990 brothers Chris and Tim Russell purchased 49.3 per cent of the company for $18.2 million.
The purchase was mainly financed through stockbroker Hwang & Yusoff, which was based in Penang, Malaysia.
Soon afterwards the Euro-National board resolved, after a proposal from the Russell brothers, to invest $21.1 million in an option to subscribe to a planned new listing on the Indonesian Stock Exchange.
The funds were taken to Kuala Lumpur and nearly disappeared into this bogus investment. The money was saved by Euro-National executive Mark Chennells who smelled a rat and flew to Kuala Lumpur to stop the transfer of funds to Hwang & Yusoff.
A few months later the Russell brothers sold their stake to the Hong Kong company Honor Friend Investments, which told the stock exchange it had no connection with Hwang & Yusoff.
The NZ Securities Commission believed otherwise and it successfully prosecuted Hwang & Yusoff and Honor Friend for being related parties and failing to file substantial security holder notices.
Justice Heron said in his judgment: "It is clear to me that this company [Euro-National] was saved from being ravaged only by the merest of circumstances."
In 1992 CDL Hotels International, which was listed on the Hong Kong and Amsterdam stock exchanges and controlled by Singapore's largest listed property company, made a successful partial takeover offer for Euro-National, which then changed its name to CDL Hotels.
This was a reverse takeover as CDL's New Zealand hotels were backed into the NZX-listed company.
The company's progress since then has been at best pedestrian and at worst, very disappointing.
CDL Hotels, which changed its name to Millennium & Copthorne Hotels New Zealand (MCK) in 2006, is the country's largest hotel owner-operator with 17 owned/leased/operated hotels and an additional 13 franchised properties.
In September 2007 MCK announced it had agreed to invest in a joint venture with a Chinese property developer, Cheung Ping Kwong.
The structure was extremely complex with MCK owning 34 per cent of a vehicle that had a 60 per cent participation in the joint venture, with the other 40 per cent owned by Cheung.
Thus MCK effectively had a 20.4 per cent interest in the venture, with this investment worth $78.7 million at the end of last year. The 2007 stock exchange release said the "precise details of this investment were subject to confidentiality agreements".
MCK's December 2008 year annual report said the joint venture had acquired the majority sections of a strata-titled resort hotel in Hainan Island.
But buying remaining sections of the hotel was complicated "by various litigations" and the joint venture "has also taken legal action against the vendor and guarantors".
The December 2009 year annual report noted further legal problems with the Hainan Island hotel. MCK dropped a bombshell on April 12 when it said Cheung had sold the hotel, with other joint venture developments, and pocketed all the money. The loss to the NZ company is about $26.1 million.
In other words Cheung has effectively stolen $26.1 million from MCK, compared with the $21.1 million that was nearly hijacked from the company almost 20 years ago.
The main focus of this week's MCK annual meeting was the loss of the Chinese hotel and the role of the New Zealand company's directors and management in the debacle.
Chairman Wong Hong Ren and managing director BK Chiu stuttered and stumbled as they explained that a company's seal or chop was the most important feature of a company in China, with its "judicial or legal person". Under Chinese law that person, if he or she has access to the chop, has the power to bind a company without needing any other signature.
This issue was extensively covered in the book Mr Asia by Tim Clissold, published in 2004. Clissold raised more than US$400 million from North American investors and bought factories in China through joint venture structures.
The chairman of these factories was usually the "judicial person" but in one joint venture the US-based chairman signed a power of attorney that allowed the Chinese CEO to act as the "judicial person for normal operations".
The Chinese CEO stole US$4 million and the US investors went to court. The decision went against the overseas investors and they were hit with extra costs of US$10 million.
Clissold's book effectively warned overseas investors about the importance of the chop and the "judicial person" yet MCK fell into this well-known trap that has some similarities to a Nigerian email scam.
Wong and Chiu's tale included threats by criminal thugs, concerns over the safety of the Hainan Island hotel staff and pleas by Wong to the local Communist Party officials.
It was patently clear the New Zealand company was out of its depth in China and didn't have a Mark Chennells, who ironically now lives in Shanghai, to save it this time.
Wong tried to convince shareholders it was MCK's Australian money that went to China until one shareholder correctly pointed out this money had originally come from New Zealand.
Chairman Wong must take a lot of the blame for the Chinese disaster as it appears he is chairman of the Hainan Island hotel and he shouldn't have given Cheung the authority to be the "judicial person".
Wong told attendees the company might have to ask shareholders to help fund the legal action, which could be costly based on Clissold's experience.
MCK's annual meeting was also extremely disappointing because the directors and management offered little energy or enthusiasm for our tourism industry. Chiu presented a very bleak outlook for inbound tourism and offered no imagination or solution to the lack of growth.
He said MCK had invested in China because it offered far more growth prospects than New Zealand and the company was also keener to buy new hotels in Australia.
One of the problems is that MCK sees itself as a property company rather than a hotel operator. But investors don't rate it highly in this regard as its share price is currently 40c, a huge 67 per cent discount on its net asset backing of $1.22 a share as at December 31 last year.
Millennium & Copthorne's annual meeting was extremely disappointing, as has been its performance both here and in China. It rates no better than a D as far as shareholder wealth creation is concerned and an F for its China strategy and governance.
* Disclosure of interest; Brian Gaynor is an executive director of Milford Asset Management.
<i>Brian Gaynor</i>: Red faces over debacle of stolen hotel
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