China International Holdings has agreed to enter into a settlement agreement of 105 million yuan (S$22 million) despite believing that the claim is "baseless and unmerited", so as to avoid a protracted dispute with the municipal and district governments in China.
It said this late last week, in response to a query from the Singapore Exchange (SGX) over a settlement agreement that its 50 per cent-owned associate Yichang Xinshougang Property Development (XSG) had recently entered into, with Yiling District Urban Infrastructure Investment Company (YDUIIC).
At the heart of the dispute is how both parties viewed a sum of 105 million yuan that YDUIIC, an entity owned by the Yichang government, had given to XSG on Dec 31, 2006.
YDUIIC claimed the sum was a loan. China International and XSG, however, claimed it was an award by the Yichang government in Hubei to fund the payment for the purchase of land use rights for a development project in Meiziya.
The transfer of the sum took place before China International bought a 55 per cent stake in XSG from China Resources and Transportation Group (CRTG) for HK$550 million (S$94 million) in cash in September 2012.
XSG holds land use rights for a total site area of 587,726 sq m of land in Meiziya village in Yilling district within Yichang city, where it is planning to build a residential development, a convention centre, a hotel and associated commercial space.
In March last year, YDUIIC filed a claim against XSG for the repayment of an alleged loan of 105 million yuan, and accrued interest of 52 million yuan.
Then, on Dec 18, China International said XSG has agreed to pay 105 million yuan to YDUIIC before the end of the year. YDUIIC will then withdraw all claims on and actions against XSG after receiving this payment.
This prompted a query from SGX, which asked China International to explain the discrepancies between both parties' stand on the sum.
In its response, China International said its position, and also that of XSG, remains unchanged despite the two companies entering into the settlement agreement.
The decision by XSG, supported by China International, to enter into the settlement agreement does not constitute an admission that the sum was a loan, it said. Instead, the agreement was made to "avoid the risk of a potentially long and protracted dispute with the municipal and district governments in Yichang city, Hubei province".
The company and XSG believe the dispute should be settled as soon as possible, to pave the way for the next stage of the project development in Meiziya, it added.
SGX also noted that in the sale and purchase agreement in 2012, CRTG, which is listed in Hong Kong, had undertaken to be responsible for any claims by the China government in relation to the 105 million yuan received from YDUIIC.
China International said in response that it is exploring all options, including making a claim against CRTG. XSG may also consider claiming the award sum directly from the Yichang government, it disclosed.
The firm also agreed to SGX's request for monthly updates on the claiming of damages from CRTG.
China International shares last changed hands at 53.5 cents on Dec 27.