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China Resources Wins Permits for Mines at Center of Suit

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Aug. 5 (Bloomberg) -- China Resources Power Holdings Co. said it obtained exploration rights for two of three coal mines bought in 2010, which are now the subject of a shareholders’ lawsuit and graft allegations.

Shanxi province’s Department of Land Resources granted two year permits on July 25 for the Zhongshe and Hongyatou coal mines, China Resources Power said in a statement to the Hong Kong stock exchange today. The third mine, Yuanxiang, won a 20-year production license in April, the company said in July.

Six minority investors have sued state-owned China Resources in Hong Kong’s high court, claiming the board failed to properly assess the three mines and that the purchase was detrimental to the company. The mines lacked permits and may have violated Chinese law, according to the suit. The acquisition has also been subject to claims that the company overpaid for the assets.

“It is inappropriate to comment or respond” to recent press reports on the lawsuit given that legal proceedings are under way, China Resources Power said in the statement.

China Resources Power fell 0.9 percent to HK$17.48 in Hong Kong, while the benchmark Hang Seng Index rose 0.1 percent.

The power utility and the chairman of its parent, China Resources Holdings Co., deliberately overpaid for the mines, according to allegations in a letter posted on the official Xinhua News Agency website on July 17. The letter was written by a Xinhua reporter named Wang Wenzhi to the Communist Party’s corruption inspector.

Rejects Allegations

China Resources Power rejected the allegations on July 18, saying it paid a fair price for the mines after two independent assessments of their value.

The company said it didn’t make the deal public because its equity interest in the projects was below the disclosure threshold. The state-owned Assets Supervision and Administration Commission started an audit of the parent’s accounts, Xinhua reported on July 19.

The company’s partners in the purchase, Citic Trust Co., a subsidiary of Citic Group Corp., and Shanxi Jinye Coal Coking Group Co., which was also the seller, own 51 percent of the company that holds the mines. That entity, Taiyuan China Resources Coal Co., is an associate company and not a subsidiary, freeing China Resources Power from the obligation of disclosing the acquisition, the company said on July 18.

“More Transparency”

China Resources Power “should be encouraged to provide more transparency than the mandated minimum given its state-controlled nature,” Yang Zhifeng, a professor in the accountancy department at City University of Hong Kong, said in an interview last month. A lack of disclosure risks the suspicion that acquisitions are arranged “to benefit managers at the cost of shareholders,” he said.

No one at China Resources was available to comment, according to a person at its head office in Hong Kong who declined to give her name. A Citic Trust spokesman surnamed Wang declined to comment, citing the sensitive nature of the case. Shanxi Jinye couldn’t be reached for comment.

The shareholders’ lawsuit has no connection to Wang’s letter, Li Su, founder of management consultancy Hejun Vanguard Group, which is advising the investors, said at a briefing last month.

China Resources Holdings controls businesses spanning power generation, cement production, real estate and finance. One unit, China Resources Enterprise, produces the country’s best-selling brand of beer with SABMiller Plc. In 2012, the parent company had HK$41.2 billion ($5.3 billion) of profit on HK$404.6 billion of sales, according to its website.

The case is Sze Ching Lok v. China Resources Power Holdings Company Limited, HCMP 1655/2013, in Hong Kong’s Court of First Instance.

To contact the reporters on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net; Benjamin Haas in Hong Kong at bhaas7@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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