Mountain China Resorts (Holding) Limited
TSX VENTURE : MCG

Mountain China Resorts (Holding) Limited

November 17, 2010 01:42 ET

Mountain China Resorts (Holding) Limited Provides Update on Changchun Lianhua Mountain Skiing Field Co. Ltd.

BEIJING, CHINA--(Marketwire - Nov. 17, 2010) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the "Company") wishes to update shareholders with respect to certain developments that have taken place with respect to its subsidiary Changchun Lianhua Mountain Skiing Field Co. Ltd. ("Changchun Lianhua"). Changchun Lianhua owns a skiing resort in Changchun (the "Changchun Resort"). As previously announced, since late 2008, the Company has been involved in ongoing discussions regarding the possible divestment of Changchun Lianhua, so as to limit ongoing capital expenditures and reduce debts. 

The Previous Negotiations with the Erdao Government in relation to the transfer of Changchun Lianhua

With the approval of the board of directors of the Company on 27 November 2008, the Company has been involved in ongoing discussions regarding the possible divestment of Changchun Lianhua so as to limit the Company's ongoing capital expenditure and reduce debt. Current debt attributed to Changchun Lianhua is $3.72 million (RMB 25million) and is repayable on demand. Such ongoing discussions were previously announced in 2009 and 2010. On 16 December 2009, the Company, Changchun Lianhua Mountain Agricultural Project Development Company Limited ("CCL Agricultural"), a company owned by the government of Erdao district of Changchun city in the Jilin province of the People's Republic of China (the "Erdao Government"), and Changchun Lianhua Mountain Ecological Travel Resort Control Committee have signed a "Meeting Memorandum in relation to the Transfer of the Equity Interests of and in Changchun Lianhua". In the meeting memorandum, the parties agreed that, subject to signing of a formal sale and purchase agreement, MCR will transfer Changchun Lianhua to CCL Agricultural (the "Changchun Lianhua Disposal Transaction"). In connection with this, Changchun Lianhua has subsequently signed an authorization letter (the "Authorisation Letter") authorizing the chairman of CCL Agricultural,Mr. Fangbin, to manage Changchun Resort's daily operation as from 21 December 2009.

In February 2010, MCR signed and forwarded to CCL Agricultural for its signing a sale and purchase agreement (the "S&P Agreement") in connection with the transfer of Changchun Lianhua to CCL Agricultural for no consideration subject to the undertaking that:

  1. CCL Agricultural shall be responsible for repayment of all debts and liabilities owed by Changchun Lianhua to third party creditors on Changchun Lianhua's behalf on and after completion; 
  1. CCL Agricultural shall waive all outstanding debts owed by other MCR group companies to Changchun Lianhua.

MCR was subsequently advised by CCL Agricultural that it needed to go through certain internal procedures before the same can be signed by it. To date, CCL Agricultural has not signed and returned the S&P Agreement, to MCR.

Recent Development

As CCL Agricultural had not signed and returned the S&P Agreement for more than 4 months, the Company informed CCL Agricultural on 20 July 2010 that it had terminated the Authorisation Letter and the agreement / understanding it had with CCL Agricultural in relation to the Changchun Lianhua Disposal Transaction. Notwithstanding the termination, the chairman and employees of CCL Agricultural, with the support of the Erdao Government, had failed to return the daily operation of the Changchun Resort to the Company and continued to manage Changchun Lianhua to the exclusion of the Company without any legal basis. 

The Erdao Government's Assertion and the Company's Response

In continuing management of Changchun Lianhua to the Company's exclusion, the Erdao Government asserts that, back in 2006 when Changchun Lianhua acquired its assets from Changchun Lianhua Mountain Sports & Travel Development Company ("Changchun Sports"), the acquisition was invalid. The reason put forward by the Erdao Government is that the assets in question have always been state-owned assets. As a result, the Erdao Government holds the view that the Changchun Lianhua's assets, including the Changchun Resort, are still owned by the government and it may, through CCL Agricultural, manage the same to the Company's exclusion.

The Company disagrees with the Erdao Government's position. The Company has engaged Global Law Office, a reputable law firm in PRC, to do legal due diligence on the assets before they were acquired by the Company. Global Law Office had advised the Company that the assets acquired are not state-owned assets and the same may be validly transferred to the Company. In addition, on 9 February 2006, the Changchun City Erdao Government State Owned Property Control Bureau issued a document entitled "The Clarification of the Property Ownership in relation to the take over of Changchun Sports by Jilin Lianhua Mountain Group Co. Ltd.". In the document, the bureau confirmed that Changchun Sports no longer owned any state-owned property. Consequently, the assets transferred from Changchun Sports to Changchun Lianhua are not state-owned assets. The foregoing stance is consistent with the fact that CCL Agricultural and the Erdao Government had discussed with the Company in relation to the re-purchase of Changchun Lianhua in late 2009 and during the first half of 2010.

Because of CCL Agricultural's and the Erdao Government's failure to return the daily operation of Changchun Resort to the Company, the Company has been deprived of management of the Changchun Resort and Changchun Lianhua. The Company has engaged in discussions with the Erdao Government, Changchun Sports and CCL Agricultural with an aim of resolving this matter. If the current situation cannot be resolved through negotiations, the Company may have to resort to legal means to protect its rights in relation to Changchun Lianhua. The Company will provide a further update on this later.

Possible Impact on the Financial Result of the Company in the Third Quarter

The Company plans to announce its financial result in the third quarter. It will provide an assessment of the financial impact for the loss of management of Changchun Lianhua at that time. The Company will continue to focus its business development in the Sun Mountain Yabuli Resort. The loss of management of Changchun Resort and Changchun Lianhua does not have any impact on the business and operation of the Sun Mountain Yabuli Resort.

About MCR

MCR is the premier developer of four season destination ski resorts in China. MCR is transforming existing China ski properties into world-class, four seasons luxury mountain resorts with excellent real estate investment opportunities for discerning buyers. In February 2009, the Company's Sun Mountain Yabuli Resort was awarded Best Resort Makeover in Asia by TIME Magazine. Yabuli is also the permanent home of the China Entrepreneur's Forum the leading and most influential community of China's most distinguished and successful entrepreneurs and business leaders with over 5,000 members from across a variety of key industries.

FORWARD LOOKING INFORMATION

Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, and actual results may vary from the forward-looking information. Implicit in this information are assumptions regarding future operations, plans, expectations, anticipations, estimates and intentions, such as the pursuit of legal action and the view of MCR regarding the position asserted by the Erdao Government with respect to Changchun Lianhua. These assumptions, although considered reasonable by MCR at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of MCR are subject to a number of risks and uncertainties, including general economic, market and business conditions, uncertainty relating to land use rights, adverse industry events for the ski and real estate industries, MCR's ability to make and integrate acquisitions, the requirements of recent Chinese regulations relating to cross-border mergers and acquisitions, the inability to obtain required approvals or approvals may be subject to conditions that are unacceptable to the parties, changing industry and government regulation, as well as MCR's ability to implement its business strategies, dispose of assets or raise sufficient capital, seasonality, weather conditions, competition, currency fluctuations and other risks, and could differ materially from what is currently expected as set out above.

Forward-looking information contained in this press release is based on current estimates, expectations and projections, which MCR believes are reasonable as of the date of this press release. MCR uses forward-looking statements because it believes such statements provide useful information with respect to the operation and financial performance of MCR, and cautions readers that the information may not be appropriate for other purposes. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While MCR may elect to, it does not undertake to update this information at any particular time.

The TSX Venture Exchange has neither approved nor disapproved the contents of this press release. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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