Rogue exec walks free as Millennium settles China rorts

Millennium & Copthorne Hotels chairman B K Chiu. File photo / Dean Purcell

A rogue executive working for a Chinese property development company one third-owned by the Millennium & Copthorne Hotels New Zealand Ltd has escaped prosecution for unauthorised property sales which appear likely to leave the NZX-listed hotelier out of pocket.

MCK's statement to the NZX explaining the outcome to its disastrous China foray was as complex as the maze of companies overseen by Cheung Ping Kwong, the chief executive of the Idea Valley group of companies who sold almost US$50 million of assets without board authorisation last March and April.

However, it appears that MCK's exposure, through its 34 per cent holding in First Sponsor Capital Ltd, may be no greater than the NZ$5.3 million writedown recorded in the last accounts, from a possible total exposure of US$14.4 million.

"The financial impact of the settlement agreements on MCK will only be quantified after the completion of the various transactions and obligations," said MCK chairman B.K. Chiu in a statement issued after the close of trading. "It is anticipated that some of the losses and/or provisions made earlier in 2010 may be reduced or written back on December 31, 2010."

MCK shares rose 3 cents to 44 cents prior to the announcement.

Cheung used company seals, known as "chops" and equivalent to a binding signature in Chinese commerce, to sell some US44.9 million of assets, or 28 per cent of FSCL's interests in property developments, including a major housing project in Guanndong province and a resort on the island of Hainan.

Disposals are "expected to yield a net gain on disposal for the Idea Valley Investment Holdings Ltd", in which FSCL and Cheung were 80/20 shareholders.

FSCL has also managed to reduce by $4.73 million the cost of a 49% interest in a company in Dongguan that Cheung bought with proceeds from the other sales.

Cheung will relinquish his interest in IVIHL but will not face any criminal sanction. MCK said last year that the progress of its recovery bid would rest largely on the degree of cooperation it received from Chinese authorities.

The company's seals were promptly cancelled and reissued last year, but the latest statement says all legal action between the parties will now be dropped, and the original joint venture between MCK, Tai Tak Industries Pte Ltd., and Cheung will be terminated.

A substantial chunk of FSCL's assets were unaffected by Cheung's misdeeds, which have become a cautionary tale for New Zealand companies investing in China, although the company's principals are closely connected to Malaysian and Singaporean investors, including the powerful Hong Leong group.

Five out of six residential blocks being developed by FSCL in the city of Chengdu, Sichuan, had been launched, with 520 sale and purchase agreements worth US$72 million, and 43 option agreements signed for the 608 units formally launched.

Revenue and profit recognition from this Cityspring project was expected by late 2011, with a hospitality development to be completed ini 2012.

Meanwhile, FSCL is raising a further US$100 million to develop a further parcel of Chengu land. MCK funded US$4.2 million of this through an Australian subsidiary, the KIN Holdings group.

Full year results for 2010 are due for release in mid-February.