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China Exclusive: New board takes control of Shandong Shanshui after prolonged battle

Xinhua, February 1, 2016 Adjust font size:

JINAN, Feb. 1 (Xinhua) - A new board of directors has taken control of the Shandong Shanshui Cement Group Co., Ltd. headquarters in Jinan, capital of Shandong Province, following a prolonged power struggle, sources told Xinhua.

The boardroom battle began in December when Shandong Shansui's parent company and main operating entity, Hong Kong-listed China Shanshui Cement Group Limited, sacked former chairman Zhang Bin and several others associated with him to install a new board of directors.

Zhang and others sacked from China Shanshui's board were also members on the board of Shandong Shanshui, one of the largest cement producers in the country.

In a disclosure to the Hong Kong stock exchange on Dec. 3, 2015, the newly appointed board of China Shanshui tried to appoint new directors and change the articles of association for the Shandong Shansui board.

But Shandong Shanshui, then still led by Zhang and the original board members, said the Dec. 3 decision was ineffective because the Rules for the Implementation of the Law on Foreign-Capital Enterprises require such changes be approved by the government, which had not been the case for China Shanshui's decision.

The new board then accused the old board of retaining corporate seals that are required to acquire such an approval. Seals or chops are commonly required for verification in China's legal documents.

More than 1,000 employees from Shandong Shanshui gathered peacefully at the headquarters last Tuesday asking the old board to cede control of the seals and the headquarters.

On Saturday, the old board of directors capitulated and ceded control, according to a statement filed to the Hong Kong stock exchange on Monday.

"With the assistance of the local Jinan police, the company smoothly took over the headquarters and an additional 3 factories of Shandong Shanshui on January 30, 2016," the statement said.

PROLONGED BOARDROOM BATTLE

Shandong Shanshui was state-owned before reorganizing into a public company listed in Hong Kong. After its initial listing, the board was led by chairman Zhang Caikui, who later transferred the chairmanship to his son Zhang Bin.

The two, along with several other members loyal to them, led the cement company until Tianrui Group, another cement producer based in Henan Province and also listed in Hong Kong, bought stakes in China Shanshui and became the single largest shareholder in 2015.

Tianrui took control of China Shanshui's board on Dec. 3, 2015, continuing the power struggle after a series of complicated corporate and legal proceedings. The control of Shandong Shanshui headquarters was an extension of the fight between Tianrui and the Zhangs.

"Except for the seals from Shandong Shanshui, all other chops and licenses retained by the former directors of Shandong Shanshui have been found and returned to each of its subsidiaries. The company is taking stock of the books, other important documents and fixed assets of Shandong Shanshui in its headquarters," China Shanshui said in Monday's statement.

REPEATED DEFAULTS

The fierce boardroom battle has taken a huge toll on Shandong Shanshui. It employs over 20,000 employees across various provinces and has an annual cement production capacity of more than 100 million tonnes.

Shandong Shanshui declared default on a 2 billion yuan (305 million U.S. dollars) debt in November 2015 and another 1.8 billion yuan debt in January 2016.

Following the November default, many cement, coal and steel companies, all in industries which are experiencing huge overcapacity, canceled their debt offerings, with investors jittered about the risk.

"Shanshui's finances were comparatively sound, so its unexpected default had an impact on investors," Sun Binbin, a researcher with China Merchants Securities, said at the time of the default announcement.

In both defaults, the company said it had been seeking financing options, but was turned away from banks and financial institutions because there were concerns over the management of the company and the impact that it may have on the business and financial prospects. Endi