china's state corporations put on a pte face, page-4

FROM the very beginning it was an unlikely story. A mid-sized private Chinese company with no mining experience, unknown outside its home province of Sichuan in the country's booming southwest, spending $1.65 billion to take control of an Australian mining hopeful with assets in Africa.

The announcement by Sundance Resources in October that Hanlong would lift its original $1.2bn bid by 35 per cent with backing from state-owned China Development Bank, which in recent years has emerged as the world's largest funder of mining and energy mergers and acquisitions, appeared to seal the deal.

But even before that there were signs that if the wheels weren't quite falling off, they were wobbly.

On September 12, the Australian Securities & Investments Commission revealed it was investigating five people, including Hanlong executives managing director Stephen Hui Xiao and vice-president Calvin Zhu and Fan Zhang, over trades in Sundance and Bannerman Resources before they were subject to bids by Hanlong.
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Zhang is sole director of Wingatta, a company also under investigation. Xiao's wife, Xike Hu, and another woman, FanFan Chen, are also under investigation. The share trading netted them $3.1 million.

This week, ASIC filed affidavits with the NSW Supreme Court that showed Xiao is saying that Hanlong was involved, claiming that a company named Gold Pattern, which was trading in Bannerman and Sundance, was a nominee of Hanlong Resources of Hong Kong.

Xiao also told the regulator that other accounts identified overseas were nominee accounts for a Hanlong company, Hanlong Investment, although there were no records of this.

Hanlong has previously denied any involvement in insider trading in Australia.

In 2008, the company's licence was suspended by the Chinese -- something that doesn't appear to have been told to Sundance shareholders or to have bothered the Sundance board after the information was published in the Australian media.

To compound the embarrassment of the investigation, Xiao, who is no corporate middle manger but was the top executive at the company's mining arm, albeit with none or little experience of the sector, has refused to return to Australia after being allowed to leave the country by ASIC to present an oral defence of his PhD at the Wuhan University of Technology, which he says he failed.

He provided assurances he would be back by November 26 and has claimed high blood pressure will not allow him to travel.

Xiao has not provided any evidence of his condition.

The Sundance board told shareholders it retained faith in its Chinese bidder but their faith must be weakening.

"As stated previously, Sundance will not provide commentary on the details of its ongoing discussions with Hanlong, which are progressing well. But it will maintain its policy of announcing material developments to the ASX," a Sundance spokesman says. "As also stated previously, Hanlong has advised Sundance that ASIC's investigation focuses solely on the individuals named and not Hanlong."

There is no suggestion Hanlong is engaged in any fraudulent behaviour. Hanlong has declined to answer any of the detailed written questions provided by The Australian.

West Australian corporate doyen Peter Mansell, veteran of various mining boards and the one-time chairman of West Australian Newspapers who led a quixotic but doomed fight against Kerry Stokes' creeping takeover of the company, lent his credentials to Hanlong by taking the job as chairman and iron chief at Hanlong Australia in February.

He has denied any knowledge of the insider trading.Getting a true bead on exactly what constitutes the already diversfiied Hanlong group, which has already been welcomed with open arms by Kevin Rudd, has proved as elusive as Xiao.

After the rush of media attention that followed its Sundance bid, the group shuttered its headquarters in Chengdu, capital of the huge southwest province of Sichuan. Sources say it now operates out of a few hotel rooms at the city's five-star Kempinski Hotel, but staff at the hotel are unaware of it.

It appears increasingly likely the Sichuan government may be behind Hanlong's $1.65bn bid for Australian-listed Sundance.

But the company's failure to meet a deadline last week to obtain firm backing from the China Development Bank suggests this support may be waning.

Hanlong Group was founded in March 1996 by chairman Liu Hand and has registered capital of 380 million yuan ($59m) , a mere fraction of its Sundance bid.

Its website boasts the group's business interests cover electricity generation, chemicals, bio pharmacy, infrastructure, real estate, mineral exploration, tourism, food and brewery, bioengineering, telecommunications and education. But not mining.

The general assets of the company exceed 1 trillion yuan, its website says, but does not break them down, and it owns and holds shares in more than 30 companies. But many of these businesses are understood to be joint ventures with government.

For example, in April, Hanlong signed "a strategic co-operation agreement" with CCCC Shanghai Dredging Company, a company under China Communications Construction Company, the largest group owned by the central government in Beijing that operates in the transport construction sector. Like many Beijing SOEs it has shares listed in Hong Kong. No details of the agreement have been published.

Liu is extremely media shy. He and his government counterparts are so keen on privacy that the Sichuan provincial propaganda department has issued a blanket decree that journalists cannot investigate Hanlong or Liu.

But bits and pieces about him that have managed to slip through the gaps are colourful.

He comes from the smaller town of Mianyang, about two hours' drive from Chengdu. He poured money made in his youth -- there is no record of his early career -- into energy futures, one account says.

Another says he built a "trading platform", which made the money to start Hanlong in 1997. It was at this time that a shooting attempt was made on his life.

Still, he has proved himself to be a popular local benefactor, donating money to various charities and building a hospital.

The failure of one-time No 1 state-owned miner Chinalco (a spot perhaps now occupied by Minmetals) to double its stake in Rio Tinto, followed by a general slowdown in the approvals process for China-led deals under Rudd's prime ministership has led to a lingering perception t in Beijing that Australia is a difficult player when getting deals over the line for state-run companies.

Never mind that in 2010 the government let the $3.3bn takeover of Macarthur Coal by state-owned Yanzhou Coal through with minimal fuss. Reality or not, that perception remains.

Into the breach have started stepping some of China's more ambitious private companies, with the backing of the all-important NDRC and its financing giants such as the China Development Bank and China Export Import Bank. But it is important to realise what close links most of China's leading entrepreneurs have with the party-state.

Former premier Jiang Zemin spotted the opportunity as private millionaires and billionaires began to emerge in the 1980s and 90s, encouraging the nation's richest and most innovative business people to join the Communist Party. Many of the country's leading private business people are, if not party members, closely linked to the world's most powerful political party. .

They are as much arms of the state-capitalism machine as the increasingly powerful state-owned enterprises. Many of these companies owe their wealth and growth to their state connections. Most share joint ventures with various arms of government where they split the profits and the benefits. It's the very apotheosis of crony capitalism.

As Hanlong founder Liu says on the company's website: "Hanlong Group has endured a marvellous development course, and it has received care, aid and support from provincial and municipal party committees, provincial and municipal governments and all circles of the society since its establishment."

Hanlong's website details a string of deals and alliances with various governments and ventures with state-owned businesses around the country.

It is companies such as Hanlong and entrepreneurs such as Liu that China Inc is backing to do deals in places like Australia where they perceive the environment for state-run companies to be more difficult.

"Every company in Hanlong Group is private," China Business News reported Liu as saying in August.

"Australia is a rule-of-law country.

"The Australian government doesn't have a law that can resist these takeovers."