CHINA: Government work group steps in Shanshui Cement offices

A government work group has stepped into the offices of Shandong ShanshuiCement Group Co Ltd., whose Hong Kong-listed parent declared default on 2 billion yuan($312.5 million) debt last month, amid an intensifying boardroom battle.

The work group led by a deputy mayor of Jinan, capital of eastern Shandong province whereShandong Shanshui is based, aims to ensure stability at the cement manufacturer, which isone of China's largest and employs more than 22,000 people across various provinces,Xinhua learned from a government source.

Shandong Shanshui is the operating unit and a wholly-owned subsidiary of Hong Kong-listedChina Shanshui Cement Group Ltd, whose entire board was thrown out a week ago.

In a Dec 3 disclosure on the Hong Kong stock exchange, the new board of China Shanshuisacked the board of Shandong Shanshui, appointed new directors and changed articles ofassociation of Shandong Shanshui.

The new directors then released a statement via a law firm that they should be the legalmanagement of Shandong Shanshui.

But in a Tuesday disclosure on the Shanghai Clearing House, Shandong Shanshui,apparently still led by its original board, said the Dec 3 decision was illegal and, therefore,ineffective.

Article 17 of the Rules for the Implementation of the Law on Foreign-Capital Enterprisesstates that the articles of association of a foreign-capital enterprise shall become effectiveafter the approval by the examining and approving government organ.

The original board-led Shandong Shanshui cited the article, saying that China Shanshui's Dec3 decision violated the rules, since the change of articles of association had not beenapproved by a government organ.

The original board-led Shandong Shanshui said it was suing China Shanshui for spreading"false information," including the change of board and articles of association of ShandongShanshui, in a court of Jinan. It added that the court has agreed to hear the case.

Sources close to the original board said the government work group had instructed ShandongShanshui to maintain the status quo, and will guide major decision-making, implement worksafety measures, and prevent violent incidents.