Road King (1098.HK) pays HK$1B for.... what??!

Another case demonstrating the risk of doing in business in China with it's rudimentary rule of law. Road King enters into an agreement with Sunco to buy shares and effective control. Roadking pays $600m after which Sunco refuses to cede control. Roadking on the advice of "legal counsel" pays another $400m to cover further Sunco expenses on the hope they maybe able to recover that from Sunco at a later date.

Tragic and yet afar comedic. Has the makings of a classic Nigerian scam on a bigger scale..

One major cause of this mess is Road King's move away from it's core competency (toll roads) into property.

The Group commenced legal proceedings in the Tianjin Nankai District People’s Court in October 2007 to enforce its

rights and to assume effective control over the Tianjin Companies. However, the legal proceedings against the former

management of the Tianjin Companies were temporarily suspended in 2008 on the basis that unspecified facts which

related to those proceedings may overlap with unspecified matters under investigation by Tianjin authorities.

In January 2009, the Company received a notice advising that an investigation on a criminal accusation by Tianjin

authorities was officially dismissed. In addition to the legal proceedings as mentioned above, with the assistance

provided by the Tianjin municipal government, the Group is now gradually resolving the legacy problems of the

Tianjin Companies in Tianjin with a view to eventually obtain effective control over the Tianjin Companies. However,

at the date of this report, the former management of the Tianjin Companies has not yet handed over the official

seals and books and records to the Group and in the opinion of the Directors, the Group has not obtained control

over the Tianjin Companies. The Group will continue its best endeavours to obtain effective control over the Tianjin

Companies.

As the Group does not have control, and is not in a position to exercise significant influence, over the operating and

financing policies of the Tianjin Companies, the Tianjin Companies are not currently considered to be subsidiaries

or associates of the Company and therefore they are accounted for as available-for-sale financial assets. Accordingly,

the financial statements of the Tianjin Companies have not been consolidated into the Group’s condensed

consolidated financial statements. The investments in the Tianjin Companies, amounting to HK$638,526,000 as at

30 June 2009 (31 December 2008: HK$632,787,000), have been recorded at cost less impairment because the

investments are unquoted equity shares whose range of reasonable fair value estimates is so significant that the

Directors are of the opinion that the fair values cannot be measured reliably.

During the period ended 30 June 2009, the Group has made various payments on behalf of the Tianjin Companies,

including the settlement of their bank loans of RMB300 million, accrued interest on the bank loans, construction

costs and other expenses, totaling HK$446,086,000. These payments are considered as loans and advances to

the Tianjin Companies and based on the advice from the PRC legal counsel, the Group has the right to recover

these amounts due from the Tianjin Companies.

Based on the impairment review on the investments in, and loans and advances to, the Tianjin Companies, in the

opinion of the Directors, no impairment on the carrying amounts in relation to the Tianjin Companies is considered

necessary. However, as the timing and the eventual outcome of the court proceedings or the satisfactory resolutions

of the legacy problems of the Tianjin Companies cannot presently be determined with certainty, there exists

uncertainties that the Group may be unable to obtain effective control over the Tianjin Companies or otherwise

realise the underlying properties of the Tianjin Companies, thereby impacting the recoverability of the Group’s

available-for-sale financial assets amounting to HK$1,084,612,000 as at 30 June 2009.