At around 4 AM on April 8, dozens of vehicles carrying about 600 people gathered at the entrance of Shandong Shanshui Cement Group Co., Ltd. on National Highway 104 in Jinan, forcibly rushed through the gate, smashed several doors of the office building, and drove a loader onto the porch to ram the main entrance.

According to relevant personnel of Shanshui Group, among the hundreds of people were Liao Yaoqiang, chairman of Hong Kong-listed Shanshui Cement, and Li Liufa, chairman of Tianrui Group, the largest shareholder of Shanshui Cement. The purpose of the early morning raid was for Shanshui Cement to attempt to take control of its core subsidiary, Shanshui Group.

The defenders inside the building were more than 20 executives and employees of Shanshui Group, including Mi Jingtian, vice chairman of Shanshui Group, who had been dismissed but was still performing his duties. The farce only calmed down after police intervened, and the relevant persons involved were detained according to law.

Such a thrilling scene is very much like a movie blockbuster, but it actually happened to Shanshui Group, the main operating entity under Hong Kong-listed Shanshui Cement. And this is just a small climax in the chaotic drama of Shanshui Cement.

The core of this protracted tug-of-war is the struggle between the management of Shandong Shanshui Group and Tianrui Group, the largest shareholder of listed company Shanshui Cement, over the capital operation methods and actual control of Shanshui Cement. But with the occurrence of this violent incident, the battle for actual control of Shanshui Cement has deviated from the track of the rule of law.

In fact, the protagonist of this story, Shanshui Cement, is a company with a story, and allow me to dig up the company's "dark history" for you, dear readers.

In 2008, as the fourth-largest cement enterprise in the country, Shanshui Group was listed in Hong Kong under the name "Shanshui Cement" through a red-chip structure.

In November 2013, Shanshui Group erupted in a rights-protection incident in which thousands of Shanshui employees protested against then-chairman Zhang Caikui's embezzlement of employee shares through a discretionary trust. Starting in August 2014, 2,095 employee shareholders filed lawsuits against Zhang Caikui in the Hong Kong High Court, demanding the termination of the trust relationship.

Amid the internal turmoil of Shanshui Cement, Henan-based Tianrui Group announced that it had formally purchased 951 million shares of Shanshui Cement through itself and affiliated companies, thereby becoming the largest shareholder with 28.16% of the listed company. At this point, the top four shareholders of Shanshui Cement were Tianrui Group (28.16%), Shanshui Investment (25.09%), Asia Cement (20.96%), and China National Building Material (16.67%). But at the same time, this resulted in Shanshui Cement's free float being less than 25%, and according to Hong Kong Stock Exchange regulations, trading was suspended on April 16, 2015.

On May 20, 2015, the Hong Kong High Court ruled on the "receivership order" applied for by the rights-protecting employees. The shares of 2,631 plaintiffs, totaling 45.6% of Shanshui Investment, would be taken over by a third party designated by the plaintiffs. Liao Yaoqiang, Yan Zhengwei, and Gu Zhixin of Ernst & Young were appointed as receivers of the rights-protecting employees' shares in Shanshui Investment, to take over and protect the employees' shares before a final judgment was issued.

On July 7, 2015, the three receivers from Ernst & Young were additionally elected as directors of the Shanshui Investment board, beginning to control Shanshui Investment.

On December 1, 2015, Shanshui Cement held a shareholders' meeting. Liao Yaoqiang, Yan Zhengwei, Zhang Jiahua, and others from Ernst & Young entered the Shanshui Cement board as representatives of Shanshui Investment, with Liao Yaoqiang currently serving as chairman of Shanshui Cement. At present, the listed company's board consists of representatives of Tianrui Group and the receivers of Shanshui Investment's employee shares, with no seats for Asia Cement or China National Building Material.

After taking over, Tianrui Group did not actually participate in the operations of Shanshui Group. Instead, it appointed former Shanshui Group executive Mi Jingtian as vice chairman of Shanshui Group to take charge of its actual operations, and in early 2016 completed the takeover of more than 100 subsidiaries under Shanshui Cement. This essentially formed a structure in which Tianrui Group and the Shanshui Investment receivers exercised power at the shareholder and board levels of listed Shanshui Cement, while former Shanshui Group executives led by Mi Jingtian presided over Shanshui Investment's actual operation of Shanshui Group.

However, the stable period of this structure was short-lived. In the previous equity struggle, Shanshui Cement had already defaulted on 4.6 billion yuan of debt due to the management's malicious liquidation at the time, and its shares were suspended due to the equity distribution problem. These two problems urgently needed to be resolved. On June 3, 2016, Shanshui Cement announced that the board had in principle approved a proposal to restore the company's public float. The core content of the proposal was that each existing share could be used to subscribe for four new shares. Shanshui Investment believed that the placement of new shares seriously harmed the interests of employee shareholders and Shanshui Investment, because the "one-for-four" ratio would reduce Shanshui Investment's stake in Shanshui Cement to 6.2%. Ultimately, the matter came to nothing.

On September 3, the Shanshui Cement board again passed a resolution to place no less than 910 million shares to no fewer than six independent placees, with a minimum placing price of HK$0.5. This financing plan once again aroused resistance from Mi Jingtian and others, on the grounds that the placement price was too low and affected the interests of employee shareholders.

Ultimately, the conflict between the two sides erupted in December 2016. At that time, Mi Jingtian, who was still serving as vice chairman of Shandong Shanshui Group, disclosed to the media the 2016 performance of Shanshui Group, saying that Shanshui Group had turned a profit in 2016 and that the 4.6 billion yuan debt problem had been properly resolved. Shanshui Cement terminated Mi Jingtian's position as vice chairman on the grounds of leaking inside information. But Mi Jingtian refused to accept such an arrangement, and the new management appointed by Shanshui Cement also failed to smoothly enter Shanshui Group. The relationship between the Shanshui Group management and Shanshui Cement, controlled by Tianrui Group and receiver Ernst & Young, was completely torn apart.

Since then, Shanshui Cement has fallen into a state of mutual strife between the listed company and its core subsidiary, the domestic actual operating entity Shanshui Group. Shanshui Group publicly stated that before the receivers were replaced and the boards of Shanshui Cement and Shanshui Investment were restructured, Shanshui Group would refuse to accept any instructions from Shanshui Cement.

On January 13, 2017, at the Shanshui Group 2017 work conference, a reporter from China Securities Journal (WeChat public account: xhszzb) saw on site that Mi Jingtian, as the main speaker, delivered a report as usual, summarizing the work in 2016 and arranging tasks for 2017. Afterwards, news of Mi Jingtian receiving visitors on behalf of Shandong Shanshui Group continued to appear in the media.

On March 13, Shanshui Cement again issued an announcement dismissing relevant personnel of Shanshui Group. The six people dismissed by the listed company, including Mi Jingtian, were all founding veterans of Shanshui Cement and are currently the core strength of the Shanshui Group management team.

On April 6, Mi Jingtian once again held a media briefing in the name of the Shanshui Group Party Committee, board of directors, and management team. The heads of 104 branches and subsidiaries of Shanshui Group listened to the meeting via teleconference. At the meeting, Mi Jingtian publicly blasted Shanshui Cement's huge financial loss as a "conspiracy" to lower Shanshui Cement's net assets and pave the way for a low-price additional issuance. According to Shanshui Cement's annual report data, Shanshui Cement lost 6.694 billion yuan and 979 million yuan in 2015 and 2016, respectively. Information provided at the briefing showed that Shanshui Cement's operating loss in 2015 was less than 2 billion yuan, and a large part of the huge loss was abnormal impairment, especially the almost full provision for goodwill of less than 2.4 billion yuan.

On April 6, Mi Jingtian said that the cement industry environment was continuing to improve, and this year Shanshui Group's profit target was 1.1 billion yuan. Since April 1, daily profit had reached 8-10 million yuan, with a planned profit of 300 million yuan in April. Regarding the bond default issue highly concerned by the capital market, Mi Jingtian said that with the improvement in operations, he was confident of using annual operating performance and cash flow to solve the maturing bond problem. According to this year's performance, cash flow surplus could reach 2 billion yuan, and nearly 200 million yuan had been used in the first quarter to resolve the debt crisis.

For the capital market, different interest demands determine that conflicts between shareholders or between shareholders and management are unavoidable, but any conflict incident needs to be resolved within the legal system, and the checks and balances of regulatory forces and intermediary institutions need to play a role.

Unfortunately, the current situation in which Shanshui Investment cannot achieve actual control over its core subsidiary has left third-party institutions at a loss. Shanshui Cement's auditor KPMG stated in its audit report that it was unable to express an opinion on the consolidated financial statements because it could not obtain sufficient and appropriate audit evidence. Regarding the reasonableness of the goodwill impairment loss and fixed asset impairment loss, on which the two sides had major differences, it was likewise unable to express an opinion due to the inability to obtain sufficient audit evidence.

The armed takeover in the early hours of April 8 ultimately returned to the track of the rule of law, and the relevant persons involved were arrested according to law, but this was of no help to Shanshui Group in resolving its current debt crisis. With another debt default on February 27, the principal amount of Shanshui Cement's public bond defaults has reached 5.6 billion yuan. The two core problems of the debt crisis and stock resumption have still not been resolved, and whether investors in Shanshui Cement or creditors will continue to suffer in this endless struggle......