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China New Town Development disclosed on Tuesday that its substantial shareholder, Shi Jian, has been required by the PRC Changzhou Procuratorate to remain under "custody in designated residence".
Mr Shi, who holds a deemed 69 per cent interest in the group, is also executive director and vice-chairman.
But China New Town assured shareholders that "the measures imposed on Mr Shi are not expected to have material adverse impact on the financial and operations of the group".
All businesses, subsidiaries and assets are operating and performing as usual and none of the group's assets has been frozen or seized despite the measures imposed on Mr Shi, the group said. There is also no triggered event of default under the existing facilities of the group.
It stressed that Mr Shi was not involved in the daily operations of the group though he was an executive director and daily operations continue to be managed by the team led by the chief executive officer, the chief financial officer and the vice-presidents of the group.
The group has primary listings in Singapore and Hong Kong. Mr Shi's stake in China New Town is held through SRE Investment Holding (SREI), which holds a direct 14.9 per cent interest in China New Town. The latter had in October 2013 agreed to acquire some assets in Wuxi from China New Town for 2.07 billion yuan (S$451 million). But SREI could not continue to fulfill its obligations after the first instalment.
China New Town then agreed in December last year to sell and transfer the Wuxi Project Group - a joint venture between China New Town and the Wuxi District Government - to an independent third party Wuxi Municipal New Town Development Group Limited.
Assets that were earlier supposed to be sold to SREI are part of the Wuxi Project Group. As such, some 594.25 million yuan were offset from the outstanding owed by SREI. Still, SREI was unable to meet its payment obligations due to difficulties in fund raising.
China New Town disclosed in March this year that there was again a delay in completing the disposal of the Wuxi Project Group "due to the delay in transition and settlement procedures of the disposal of Wuxi project group by various external factors". The transaction was supposed to be completed no later than June 30 this year.
In an earlier version, we mentioned that Mr Shi is the controlling shareholder of China New Town. But following an issuance of new shares to China Development Bank Investment Holdings (CDBIH) in December 2013, the latter has a 54.3 per cent of the enlarged capital base of China New Town. Under Chinese securities and futures laws, Mr Shi is deemed to have interest over the shares held by CDBIH due to a three-year lock-up under the share subscription agreement.