When the ICAC charged a person with engineering fraudulent acquisitions by Uni-Bio Science (0690) last month, we suspect they only saw half the story. Webb-site looks at the overlaps between UBS and Global Green Tech (0274), and at a series of its acquisitions.

Cosmetic appearances
25 May 2010

On 14-Apr-2010, the Independent Commission Against Corruption (ICAC) announced that it had charged Michael Liang Hui Min (Mr Liang), alleging that he conspired with others (as yet unnamed) between Aug-2005 and Jul-2007 to defraud existing and potential investors in Uni-Bio Science Group Ltd (UBS, 0690). Mr Liang was said to be a de facto controlling shareholder of UBS, and to have conspired with others to conceal that he was the true owner of three mainland companies which were sold to UBS, namely:

In this article, we call these acquisitions the Three Deals. He was also alleged to have conspired with others to falsify the accounting documents of the 3 companies to make them look financially sound and worth more than they actually were, and arranged for UBS to acquire those companies at inflated prices totalling HK$1.29bn (US$166m), settled in cash and new shares. It was suspected that part of that was then passed to Mr Liang. No plea was taken, pending further inquiries and legal advice.

On 13-May-2010, four weeks after Mr Liang was charged, UBS put out a 1-page response to press coverage (the announcement does not mention the ICAC). UBS said that "to its best knowledge after making reasonable inquiries" there exists no invisible controlling shareholder, and the sellers of the three companies are independent third parties.

A brief history of UBS

UBS was listed on 12-Nov-2001 as "New Spring Holdings Ltd", engaged in the manufacture and sale of packaging products and paper gift items. Just 50m shares (27.8% of the company) were sold at HK$1, including 12.5m old shares. The company made losses in each full year after listing. On 25-Aug-2005, Automatic Result Ltd (Automatic Result, BVI) agreed to buy the founder's 52.78% stake for $0.497 per share, triggering a general offer. Automatic Result was "wholly and beneficially owned" by Tong Kit Shing (Mr Tong), but its only director was Mr Liu Guoyao (Mr Liu, alias Lau Kwok Yiu). The ICAC alleges that Mr Liang was a de facto controlling shareholder of UBS, which contradicts the statement that Mr Tong was the owner of Automatic Result.

After the takeover, on 22-Sep-2005, Mr Tong became Chairman and Mr Liu became CEO of UBS. This was the first appearance in HK-listed companies for both men. Mr Tong was "engaged in metal and scrap metal trading business in the PRC since 1997" and "also has been investing in a company in the PRC which is principally engaged in the development of water treatment system since 2001". Mr Liu "owns a hotel in Dongguan, the PRC" where he has been a general manager since 1999.

Automatic Result was advised on the takeover by Kingston Corporate Finance Ltd, which we presume knew its client. The offer closed without acceptances on 13-Oct-2005. On 5-Nov-2005, UBS announced its proposed change of name to its current name, along with an intention to diversify into "bio-science related businesses" and said it was in "very preliminary negotiation with certain party on the proposed acquisition or co-operation of certain pharmaceutical business". It also changed its auditors from Hopkins CPA Ltd (Hopkins, formerly Albert Lam & Co) to CCIF CPA Ltd (CCIF), ostensibly because Hopkins was going to carry out an internal control review, although we cannot find any subsequent mention of this review.

The managing director of CCIF is Charles Chan Wai Dune. He and CCIF were recently fined and reprimanded by the HKICPA for a defective audit of UDL Holdings Ltd (the company was not named but we figured it out). CCIF was replaced again as auditor of UBS by Hopkins on 26-Aug-2008. All of the audit reports on UBS since its IPO have been clean.

UBS had not issued any shares since its 2001 IPO, but under new management, they soon started pumping out the paper. On 15-Feb-2006, UBS launched an open offer of 2 new shares at $0.50 for every share held, raising $175.5m net.

The Three Deals

If, as the ICAC alleges, Mr Liang conspired with others, then who else might face allegations in this case? Obviously if he was the true owner of the 3 mainland companies as alleged, then those who were named as the vendors (which UBS always stated to be independent third parties) may not have been the true vendors. So first let's get the details of the three deals, and then we will tell you what we know about the vendors.

This is where you can help, dear reader. Look at the names below defined in bold. Those are people for whom we we have some information, and the rest are people on whom we cannot find anything, so if you know anything about the undefined people, please tell us in confidence.

Deal 1: FUTL (DG-Pharmaceutical)

On 26-Apr-2006, UBS announced that it would buy Figures Up Trading Ltd (FUTL, BVI) for HK$472m, of which $274m was in cash and the rest in shares at $0.90, based on 10.1x 2005 earnings. FUTL was incorporated on 12-Apr-2000. It owned only Dongguan Tai Li Green Environmental Technology Co Ltd (incorporated in the PRC on 25-Sep-2002), which owned only DG-Pharmaceutical (incorporated on 9-Sep-2002), engaged in "sales and distribution of pharmaceutical and healthcare products". The vendors were:

We note that the 6 vendors each received either 4.92% or 4.63% of the enlarged share capital of UBS, so none of them had a 5% discloseable shareholding after the deal. This was a Major Transaction under the Listing Rules, requiring a circular with an accountant's report on FUTL. The reporting accountant was CCIF, which expressed an opinion that the financial information gave a true and fair view of FUTL for the 3 years to 31-Dec-2005. The ICAC alleges that the accounts of FUTL and the other 2 acquisitions were falsified. If that is true, then CCIF failed to spot it.

Deal 2: Nan Hoo (Beijing Genetech)

On 27-Nov-2006, UBS agreed to buy Nan Hoo Properties Ltd (Nan Hoo, BVI) for HK$454m, of which $230m was in cash and the rest in shares at $2.80. Nan Hoo was incorporated on 20-Apr-1993 and by the time of the UBS acquisition it owned only Beijing Genetech, which it acquired in Dec-2003. The vendors of Nan Hoo were named as:

Nan Hoo, via Beijing Genetech, was "engaged in the manufacture and sale of pharmaceutical products", but the 2007 UBS annual report stated that Nan Hoo "had no significant contribution to the Group's revenue" from the date of completion of the acquisition (21-Dec-2006) to the 31-Mar-2007 year-end. The accounts (note 37(b), p105) showed that the deal completed for $457.107m (slightly higher than announced, because of a rise in the share price before completion) including $116.9m of intangible assets and $193.626m of goodwill. This is exactly the amount of goodwill impairment booked (note 17, p82) by UBS in the year ended 31-Mar-2009, so we assume that was on Nan Hoo, although they didn't say so.

We pause to note another potential problem with UBS: as at 31-Mar-2008, within "other receivables, deposits and prepayments", they had paid out $155.302m as "deposits for purchases of technical know-how" of several pharmaceutical products and the exclusive right for commercialisation thereof, which was expected to become intangible assets "upon obtaining the patent granted by the SFDA". Actually, the State Food and Drug Administration approves and registers drugs but does not grant patents. For patents, you go to the State Intellectual Property Office. Anyway, in the year to 31-Mar-2009, the net amount of such deposits dropped to $21.863m, with no additions to intangible assets, and there was an impairment loss on other receivables, deposits and prepayments of $108.882m.

Deal 3: Zethanel (Shenzhen Watsin)

On 24-Jul-2007, UBS announced that it had agreed to buy Zethanel Properties Ltd (Zethanel, BVI) for about HK$366.7m, which was settled with $165m in cash and 36.67m shares at $5.50. The deal was completed on 22-Aug-2007. Zethanel's only material asset or liability was its 100% stake in Shenzhen Watsin, which produced "recombinant human epidermal growth factor... in liquid preparations primarily indicated for external use for burn and wound care". UBS, via DG-Pharmaceutical, was already the exclusive mainland distributor of these products under an agreement entered into on 31-Mar-2007.

The vendors, both being "independent third parties" were named as:

The names, and Global Green Tech

A common thread for many of the vendors in the Three Deals is Global Green Tech Group Ltd (GGT, 0274). On 29-Apr-2010 GGT published its 2009 annual report, on which the auditor set some kind of record by listing 15 different reasons why it disclaimed an opinion on the accounts. Virtually every item in the balance sheet lacked adequate information or explanation, yet in the previous year, the same auditor, Hopkins, gave it a clean bill of health. The stock has been suspended since 10:00 on 30-Apr-2010, pending clarification.

In our view, the ICAC should be having a good hard look at the acquisitions made by GGT too, particularly of its cosmetic distributors. We go through a number of these deals in the rest of this article.

We note that in each of the Three Deals, the financial adviser to UBS was REXCAPITAL (Hong Kong) Ltd (Rex). Rex was also the independent financial adviser to the independent directors of GGT in at least 3 circulars in 2007.

GGT was co-founded by Lau Ru Dong (Mr R D Lau) and Mr Choi (one of the Zethanel vendors) in Nov-1994. It was listed in HK on 18-Dec-2000. It was then "principally engaged in the development, manufacture and sale of... home and personal care products... and industrial surfactants". Right after its IPO in 2000, GGT was 26.4% owned by R D Lau and 34.0% by Mr Choi. R D Lau never served on the board of GGT.

Judy Lau (the other Zethanel vendor) is Mr R D Lau's daughter, and she was a senior manager of GGT and Chairman of its subsidiary Bio Beauty Group Ltd (Bio Beauty), which aborted an IPO on 10-Dec-2007.  Her brother is Jim Lau Jin Wei (Jim Lau), who was Chairman of GGT. Mr Choi was an Executive Director of GGT until 30-Sep-2004.

The reporting accountant in the GGT prospectus was Ernst & Young, but it is interesting to note that the accounts of the subsidiaries for 1997 and 1998 (the first 2 years of the 3-year track record) were audited by Alex So & Co. That's the sole proprietorship of Alex So Yin Wai (Mr So). Mr So was appointed as an INED of UBS on 22-Sep-2005 (upon the takeover by Automatic Result) and resigned on 15-Mar-2010, just a month before Mr Liang was arrested, because "he wishes to have more time to devote to his other work commitments". Mr So was also Chairman of the audit committee of UBS. That left UBS with only 2 INEDs (less than the minimum of 3), neither of which had accounting or financial expertise. The vacancy was filled on 7-May-2010 by Tsao Hoi Ho. He was once the qualified accountant at Ming Fung Jewellery Group Ltd (MFJ, 0860), joining them in Dec-2005 and leaving in 2008.

A former INED of GGT is Jerry Yip Wai Leung (Mr Yip). Mr Yip is a partner of J. Chan, Yip, So & Partners, a law firm. Mr Yip was an INED of Styland Holdings Ltd (Styland, 0211) from 14-Jul-1999 to 31-Mar-2003. He was appointed as an INED of GGT on 20-Oct-2000 (before its IPO). On 30-Sep-2004, Mr Yip was reclassified as non-independent, because his firm had been providing legal services to GGT and the Listing Rules changed that day so that corporate lawyers could no longer claim to be independent directors of their clients. Mr Yip stepped down as NED on 30-Sep-2005.

On 13-Jan-2006, Mr Yip (via his family trust) bought the 36.5% controlling stake in Green Energy Group Ltd (GEG, 0979, then China Nan Feng Group Ltd), triggering a general offer which closed on 24-Mar-2006, when Mr Yip became Chairman of GEG. All the incumbent directors, including the INEDs, were replaced. Mr So was one of the new INEDs. Apart from Mr Yip, the only other executive director was Charles Ming Ka Fook (Mr Ming). He was an ED from 2-Mar-2006 to 5-Jun-2006, then Deputy Chairman until his death at the age of 73 on 2-Mar-2008.

At the IPO of GGT in Dec-2000, the Financial Controller was Henry Chan Bing Kwong (Henry Chan), who had joined the company 5 months earlier, and had a post-IPO stake of 9.6%. He received his stake under a declaration of trust from Mr Choi in 1996 "for his assistance in...corporate and financial planning". Henry Chan was an Executive Director of Styland from 1-Aug-1997 to 4-May-2000. He left GGT some time in 2003. He was also an INED of MFJ for nine months that year.

Mr Y L Ho, one of the Nan Hoo vendors, was an INED of GGT from 15-May-2008 to 6-Jul-2009. We know nothing else about him.

Another INED of GGT was Goldman Lee Pak Chung (Mr Lee). He was appointed on 30-Sep-2004 (the day Mr Yip was re-designated to NED) serving until a change of control on 25-Sep-2009. On 13-Jan-2007, he was appointed Qualified Accountant and Company Secretary of UBS. Mr Lee was one of the people arrested by the ICAC on 1-Mar-2010 and released on bail. He resigned from UBS effective 1-May-2010. He was also an INED (and chairman of the audit committee) of MFG from 12-Aug-2002, resigning on 20-Apr-2010 after his arrest, although the reason he gave was "due to his commitments to other business which require more of his dedication".

One other overlap: one of the INEDs lined up by Bio-Beauty for its aborted IPO was Mr Tam Pei Qiang, who is also the financial controller of GEG. He joined GEG in 2005.

Options & convertibles

GGT was also one of the issuers featured in our article on CSFB's toxic convertibles in 2005. It's interesting to note how few of the listed companies in that article are still around. As we noted in that article, GGT has been a prolific issuer of share options since its IPO, regularly granting a slug of options equal to the maximum 10% of existing issued shares permitted by the Listing Rules. The options are allotted not just to directors and employees but also to customers, suppliers and consultants. In many cases, they are exercised soon after grant. Five years later, the habit continues.

For example, on 7-Jul-2009 it granted options over 198.8m shares equivalent to 10% of the existing issued shares, and 181.3m of these were exercised by 17-Aug-2009. On 25-Feb-2010, it granted options over another 262.1m shares, again equal to 10% of the existing issued shares.

There are some companies in HK which apparently regard the share option scheme as little more than a form of placing mandate, a way to hand out equity without getting minority shareholders' approval to renew the general placing mandate.

Bio-Treat

Mr Wong, one of the six purported vendors of FUTL, was an Executive Director of Bio-Treat Technology Ltd (Bio-Treat, SGX:B22) from 10-Feb-2006 to 5-Aug-2009, and had worked for Bio-Treat in a sales and marketing capacity since 1998. Bio-Treat, involved in biological treatment of waste water, was listed in Singapore on 16-Feb-2004. A pre-IPO investor was GGT, which owned 8% immediately prior to the IPO. It purchased this stake from Bio-Treat's then Chairman Mr Wing Hak Man in May-2002 for HK$31.6m.

Mr Yip was an INED of Bio-Treat from 22-Oct-2003 (pre-IPO) to 31-Jul-2007.

Mr Zhou Yao Ming, who has been an INED of Bio-Treat since 22-Oct-2003 (pre-IPO) is also an INED of UBS since 22-Sep-2005 and was an INED of GEG from 2-Mar-2006 to 5-Jun-2006.

Bio-Treat reported strong growth for several years, but by 30-Jun-2007 it had accumulated trade and other receivables of RMB1,001m, compared with revenue that year of RMB1,589m. In the following 2 years, it made massive impairment provisions of RMB889m on trade receivables.

Bio-Tech Pharm

Another company of interest is Bio-Tech Pharm Group Ltd (BTP, BVI). According to the 2002 accounts of GGT, during that year, GGT acquired 4.5% of BTP for HK$31.5m, as well as its 8% stake in the forerunner of Bio-Treat, so the total outlay was HK$63.1m, and this indeed shows up in the cash flow statement. So that's fine, but then four years later, in note 22 of the 2006 GGT accounts, we see this garbled statement:

"On 5 January 2002, one of the Group's subsidiaries was entered into a share swap arrangement with an independent third party - Leung Kar Loon, Stanley. Mr Leung would transfer those share of Bio-Tech Pharm Group Limited for 4.5% with consideration of HK$31.5 million to the Group's subsidiary.

However, on 13 December 2003, there was another share swap arrangement between the subsidiary and another independent third party - Li Kit Yuk. The arrangement was about the subsidiary to transfer the 4.5% of share of Bio-Tech Pharm Group Limited to him amounting to HK$31.5 million in exchange with the 11,250,000 shares for HK$2.80 per share of Uni-Bio Science Group Limited ("Uni-Bio") on or before 31 December 2006. Together with the unrealised gain as at 31 December 2006, there was altogether HK$38,812,500.

The subsidiary executed the shares swap on 18 December 2006 with the intention to dispose the share in Uni-Bio in the near future and transferred as trading securities under listed equity securities in note 23." (emphasis added)

Now first of all, there was no "share swap" - it is clear from the 2002 accounts (if they were not false) that this was a cash purchase. There was no mention of any share swap until 2006, and even then, they don't say what shares they swapped for the BTP stake in 2002. In the intervening years, the GGT accounts all stated ownership of the stake.

The above accounting extract also connects Stanley Leung, one of the purported Nan Hoo vendors, to GGT. He was also an INED of Long Success International (Holdings) Ltd (8017) from 14-Sep-2007 to 30-Jun-2008. That's all we know about him.

The above accounting extract also connects Mr K Y Li, who was one of the FUTL vendors, and GGT. He apparently swapped part of his 28m UBS shares, which he received when selling FUTL to UBS, for the 4.5% stake in BTP. But look at that date - 13-Dec-2003 - that was more than 2 years before Mr K Y Li sold his stake in FUTL to UBS, so how could he have known, back in 2003, that he would have 11.25m UBS shares to trade with GGT by the end of 2006? Surely something is wrong here.

Michael Liang

Now, we return to Mr Liang. He has been mentioned in a court judgment before as a witness in an appeal of a magistracy case. The judgement states that according to the facts admitted by the appellant, Mr Liang was:

 "a director of Fortune Net Communication[s] Limited... and a proprietor of another company called 'Global Green Tech'".

That's either an amazing coincidence of names, or it is odd that GGT has never mentioned Mr Liang in its prospectus or subsequently. We mention this only because it appears to establish a connection between Mr Liang and "Global Green Tech", which is presumably GGT or one of its subsidiaries.

We found one other reference to Mr Liang: according to page 21 of a circular of Media Chinese International Ltd dated 28-Jul-2009, on 10-Jun-2009, he and "Chan Kong" filed a writ against a subsidiary of Media Chinese called Yazhou Zhoukan Ltd, case HCA1375/2009, alleging defamation in the issue of Yazhou Zhoukan dated 3-May-2009. Chan Kong is the co-founder of Bio-Treat, and is currently an INED of newly-listed Fook Woo Group Holdings Ltd (0923).

In that same page, you will see that GGT, its subsidiary Bio Beauty and others are suing another subsidiary of Media Chinese, Ming Pao Newspapers Ltd, alleging defamation in two articles published on 11-Dec-2007 and 12-Dec-2007, case HCA80/2008.

Bio Beauty

Now let's look at Bio Beauty, the aborted spin-off which lies at the core of GGT's balance sheet. As the prospectus records, on 11-Sep-2001, a company called High Billion Investment Ltd (High Billion) entered into an agreement with Bio-Click Technologies Ltd (Bio-Click) pursuant to which Bio-Click granted a non-exclusive license on unpatented technology know-how "for the extra-cellular production and purification" of human Epidermal Growth Factor (hEGF) for 4 years commencing 6-Nov-2002, the date of the first invoiced sale. After the first 4 years, High Billion would continue to use the technology for free.

Bio-Click was owned as to 48.54% by two researchers at Hong Kong University of Science and Technology, 48.54% by a company called Vivid King Ltd (the owner and domicile of which was not disclosed) and 2.91% by HKUST's research company. The licensee, High Billion, was owned by Mr Huang Baiqing and Mr Lau Kwok Yiu. If the second name seems familiar, that's because it's also the alias of Mr Liu, the hotelier who later became CEO of UBS!

Bio Beauty records that "the management of our Group decided to use hEGF in February 2001 as our active ingredient in the production of skincare products", and in Oct-2001, the month after the non-exclusive license was granted to High Billion, it bought High Billion for HK$20m. The 2001 GGT accounts record the acquisition, with $3m paid on 28-Sep-01 and $17m on completion on 13-Nov-2001. On 14-Jan-2003, Bio-Click signed a supplemental deed waiving all future fees payable under the original agreement with High Billion, and was paid only $0.3m upon execution of the original license. Apparently that's all that the Bio-Click professors thought their hEGF know-how was worth.

In 2001, Bio Beauty agreed with Cosme-Tech S.A.R.L. of France to act as OEM manufacturer for skincare products. We can't find that company, but perhaps it is related to Cosmetech Laboratories, Inc. of New Jersey, USA. Bio Beauty selected "Marjorie Bertagne" (MB) from readily available brand names owned by Cosme-Tech. The name had not been used and no trademark had been registered, so it is not clear what they mean by "owned", but it doesn't matter. It gives them an excuse to stick the word "Paris" in the logo, even though the products are made in China and Cosme-Tech did not charge them for the brand. "Marjorie Bertagne - Dongguan" just wouldn't have quite the same attraction, and face creams are nothing if not for saving face. Cosme-Tech acted as OEM manufacturer until GGT got its own production lines up and running in China in 2003.

Distribution and retail

In its 2001 annual report, GGT spoke about its "own retail outlets" in HK and plans to launch in the PRC in May-2002. In the next interim report, it stated that it had opened a "flagship" store in Causeway Bay in Dec-2001, followed by 2 more in Admiralty and Shatin, and 7 counters in department stores in HK & Macau.

However, it later quietly created a separate, partly-owned subsidiary to manage the production and sale of MB skincare and colour cosmetics in the PRC and HK. Global Cosmetics (China) Co Ltd (GCC) was established in the PRC on 1-Apr-2004 and first appeared in the GGT accounts for calendar 2004 as a 70% subsidiary. Another company, Global Cosmetics (HK) Co Ltd (GCHK), was incorporated in HK on 6-Aug-2004. There was no mention of it in the GGT accounts for 2004 and 2005.

The 2004 accounts mentioned (note 36(h)) that Crystal Marketing Management Limited (Crystal, spelt with a "y") was a minority shareholder "of the Group" (presumably, of a company in the Group) and had entered into an agreement to pay "royalty fee and advertising subsidy" to Global Chemicals (China) Co Ltd (Global Chemicals, a wholly-owned subsidiary of GGT) of 28% of net income from sales of MB products to customers, services rendered to customers (probably beauty treatments) and any other income incidental thereto, amounting to $2.755m in 2004. Crystal also paid an advertising fee of $100k per month from Jan-Apr-2004 and $200k per month May-2004 onwards.

The 2005 accounts (note 33(f)) mentioned the same contract with Global Chemicals, but curiously, said that Crystal paid the royalty fee to GCC, not Global Chemicals. This is not just a pedantic difference, because GCC was 70% owned by GGT, whereas Global Chemicals was 100% owned.

On 2-Jan-2007, GGT revealed GCHK for the first time, by announcing that it had agreed to buy 17% of GCHK from Cristal Marketing Management Company Limited (Cristal, with an "i" and a "Company") for HK$241.09m in cash, implying a valuation for the whole of CGHK of $1,418m. Cristal was incorporated in HK on 24-Aug-2001 whereas Crystal in untraceable, so we'll assume that Cristal and Crystal are the same company. GGT said that GCHK was 70% owned by GGT and 30% by Cristal, with HK$40m of share capital issued at par, and was "principally engaged in the wholesale of cosmetics and skincare products manufactured by members of the Group." GGT also said that GCC was a subsidiary of GCHK.

So GGT was paying 35.45 times the start-up cost to buy another 17% of GCHK. The owner of Cristal was not disclosed. Cristal's principal activities were "retailing of cosmetics and provision of beauty treatment services." This was a Discloseable Transaction under the Listing Rules, but not a Major Transaction, so no accountants' report was contained in the circular. GCHK The circular contained a claim that the unaudited net asset value of CGHK at 30-Jun-2006 was HK$250.2m. So 17% of that would be $42.5m. However, we note that by the time the deal completed, the share of net assets was only $18.13m, as recorded in note 15 of the 2007 accounts.

On 16-Aug-2007, GGT agreed to buy the remaining 13% of GCHK from Cristal, this time for HK$274.1m, satisfied by issuing 13,936,390 shares (then 15.34%) of Bio-Beauty, ahead of the IPO which was later aborted. This time, the amount of the net assets acquired was HK$37.59m. The price implied a valuation of $2,108m on GCHK. This was again a Discloseable Transaction, so no accountants' report was required in the circular. Again, the owner of Cristal was not disclosed.

In both acquisitions, Rex acted as Independent Financial Adviser, blessing the deals.

Next came the aborted IPO of Bio Beauty, in which HK tycoon Mr Cheng Yu Tung (Y T Cheng, controller of the New World group) and Philippine tycoon Henry Sy Senior (founder of the SM Prime group) were each going to subscribe US$10m as cornerstone investors.

After the IPO was scrapped, on 11-Sep-2008, GGT agreed to buy back 7,758,590 shares (8.54%) of Bio-Beauty from Cristal for HK$265.3m in cash (exactly $34.2 per share), implying a valuation of $3,107m on Bio-Beauty. GGT stated that Cristal had sold 6.8% of Bio-Beauty to a company called World Eagle International Limited (World Eagle) in July and September 2008, and that the (still unnamed) owner of Cristal had told GGT that it intended to sell its remaining 8.54% stake to another (unnamed) HK-listed company, part of which was in competition with GGT. Again, this was a Discloseable Transaction, and a circular was issued.

The owner of World Eagle was not disclosed, but we can tell you a bit about it...

World Eagle, Cheng Yu Tung and Mr Ming

World Eagle is not a complete stranger. Our research finds that on 4-Jul-2002, GGT entered into a top-up placing to place 54m shares (11.71% of enlarged) at $2.10, of which 40m shares went to World Eagle, which was then owned by Y T Cheng, and 14m shares went to Mr Ming, together raising $110m net. Sometime after that, but before 29-Jan-2007, Mr Ming became the owner of World Eagle. We know this because on 29-Jan-2007, World Eagle was owned by Mr Ming when it acquired shares in (guess what) UBS, from Cheng Yu Tung. In two off-market transactions that day, World Eagle bought 69.5m shares and 13.9m warrants. So, sometime between 2002 and 2007, Mr Ming acquired World Eagle from Mr Cheng or an intermediate owner. Looking back, on 4-Aug-2006, UBS agreed to issue 108m shares at $2.50 to Y T Cheng, raising $269.7m net. He later received warrants in a 1 for 5 bonus issue to all shareholders. So part of that was sold to World Eagle, by then under Mr Ming's ownership.

As noted above, Mr Ming died on 2-Mar-2008. Obviously then, he was not in charge of World Eagle when it bought shares in Bio-Beauty later that year. We don't know who was.

GGT buys Cristal

On 22-May-2009, GGT agreed to buy Supreme China Ltd (Supreme China, BVI) which owned only Cristal, from Title Best Ltd (BVI), for HK$320m, of which $160m was in cash, and $160m in 8% 3-year bonds initially convertible at $0.36 per share. The owner of the vendor was not disclosed in the announcement, but was finally named in the circular as Mr Leung Hung Fai (Mr H F Leung). This was a Very Substantial Acquisition under the Listing Rules, so there was an accountant's report on Supreme China, from Hopkins. We have been unable to find any other information on Mr H F Leung.

According to the circular, Cristal has been the sole distributor of the "Marjorie Bertagne" cosmetics and skin care products developed and/or manufactured by GGT since 2001, with 19 shops and counters in HK and Macau and over 100 employees.

The circular showed that World Eagle paid $211.3m (the same price per share) for its Bio Beauty shares, so now we can tell you that overall, Cristal received a total of $717.7m in cash (including $506.4m from GGT) in return for the 30% of GCHK which cost $12m four years earlier, a gain of $705.7m. Supreme China paid out $895.9m of dividends over the 3 years to 31-Mar-2009. Mr H F Leung was the sole director and, presumably, the sole owner during the period. Or at least, that's the cosmetic appearance - but is it more than skin-deep?

In the year to 31-Mar-2009, Cristal bought $26.8m of cosmetics from GCHK.

On 25-Sep-2009, there was a change of the largest shareholder of GGT, and new management was installed. With the new board, the incoming Company Secretary of GGT was Mr Fung Kwok Leung. He resigned effective 1-May-2010. Guess where he went? He was appointed CFO and Company Secretary of UBS on the same day, replacing Mr Lee.

We continue with our look at GGT under its new board in another story today, Global Green Tech goes mining.

Hopkins' other clients

Four of the firms in this article share the same auditor, Hopkins. Our database shows that it currently has only 6 listed audit clients, including GEG, GGT, MFG and UBS. The other two are Neo Telemedia Ltd (Neo Telemedia, 8167) and Tack Fat Group International Ltd (Tack Fat, 0928), a company we warned the market about twice (in 2005 and 2007) before it collapsed in 2008. It appointed Hopkins on 6-Oct-2009.

Mei Ah Entertainment Group Ltd (MAEG, 0391) owned 3.9% of UBS when it was listed in 2001. In 2007, MAEG was one of three subscribers in a takeover of Neo Telemedia, along with Hanny Holdings Ltd and Hoffman Ma Ho Man, the Deputy Chairman of Success Universe Group Ltd (0487). Hopkins has been auditor of Neo Telemedia since 20-Sep-2005.

Hopkins was also the auditor of Code Agriculture Holdings Ltd (Code Agriculture, 8153) from 15-Jun-2006 to 1-Apr-2009.  Code Agriculture was listed as "M21 Technology Limited" on 30-Mar-2001, when it was 29.25% owned by MAEG.

The MD of MAEG, Mr Tong Hing Chi, was an NED of UBS from its IPO until 30-Aug-2005. He was MD of Code Agriculture from its IPO until 31-Oct-2008. He has been Vice Chairman of Neo Telemedia since 1-Mar-2007.

In the past, Hopkins has been auditor of several companies we have written about, including Skyfame Realty (Holdings) Ltd (from 2002 to 28-Sep-2005) and Riverhill Holdings Ltd (from 22-Aug-2003 to 29-Nov-2004). Both companies featured in our "Styland Network" stories of 2002. This was eventually followed by a series of regulatory investigations and actions.

We deal with Code Agriculture in another story today.

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