(北海南国天堂房地产开发有限公司)

PANHONGPROPERTYGROUPLIMITED(RegistrationNumber:37749)LEGALPROCEEDINGSAGAINSTTHEVENDOROFEVERSUREINDUSTRIESLIMITEDOn14December2006,theBoardofDirectorsofPanHongPropertyGroupLimited(“PanHong”orthe“Company”)announcedthatLoerieInvestmentsLimited(“Loerie”),awhollyownedsubsidiaryoftheCompany,hadenteredintoasaleandpurchaseagreement(the“Agreement”)withoneMrLiuHongShu(the“Vendor”)inconnectionwiththeacquisitionofa90.0%interestintheentireissuedandpaid-upcapitalofEverSureIndustriesLimited(“EverSure”)(the“Acquisition”).PursuanttotheAgreement,thelegalcompletiondateofthisAcquisitionis31August2007.Inconnectionwiththeabove,theVendorhasfailedtofulfillhisobligationtocompletetheAcquisitionon31August2007,theagreedcompletiondateoftheAcquisition.AfterseekinglegalcounselinHongKong,PanHongisoftheviewthatithasastronglegalcaseagainsttheVendor.Accordingly,theCompanywillbecommencinglegalproceedingsinHongKongagainsttheVendorforbreachofcontract.BackgroundontheAcquisitionOn14December2006,LoerieenteredintotheAgreementwiththeVendorfortheAcquisitionatapurchaseconsiderationofaboutHK$101.5million(the“PurchaseConsideration”),whichwasarrivedatona“willing-buyer,willing-seller”basis.TheAgreementwassealedwiththeprofessionalassistanceofaninternationalsolicitorfirm,MallesonsStephenJaques(“Mallesons”).EverSureisaninvestmentcompanyincorporatedinHongKong.Itssoleinvestmentisa100%interestinaPRCcompany,BeihaiSouthernParadiseLandIndustriesDevelopmentCo.,Ltd(北海南国天堂房地产开发有限公司),whichinturnownsfourparcelsoflandinBeihaiCity,GuangxiProvinceinChina(collectivelythe“Property”).PanHongplanstodeveloptheProperty,whichhasanaggregatelandareaofapproximately358,296squaremetresandaplannedgrossfloorareaofapproximately381,000squaremetres,intoresidentialandcommercialproperties.UponsigningoftheAgreement,theCompanypaidthesumofHK$30.0milliontotheVendoron15December2006asdepositandpartpaymentofthePurchaseConsideration.PanHongwassubsequentlyofferedtwoseats,outofatotalofthreeseats,ontheBoardofDirectorsofEverSureanditsPRCsubsidiary(collectivelythe“EverSureGroup”).AstheCompanyhasacceptedtheappointmentswhichresultedintheCompanyhavingthepowertogovernthefinancialandoperatingpoliciesofEverSureGroupsoastoobtainbenefitsfromtheiractivities.Therefore,EverSureGroupwasconsideredbythedirectorsoftheCompanyassubsidiariesbecauseEverSureGroupiscontrolledbytheCompanysince31March2007.Accordingly,thefinancialstatementsofEverSureGroupwereincludedinPanHong’sconsolidatedfinancialstatementsfrom31March2007.TheGrouprecognizedasubstantialgainofapproximatelyRMB77.8millioninthefirstfinancialquarterended31March2007,arisingfromthedifferencebetweenthePurchaseConsiderationofRMB101.5millionandthenetfairvalueoftheassetsacquiredofRMB179.3million.Page1of2Indeed,sincetheAgreementwassignedinDecember2006,realestatevaluesinBeihaihavecontinuedtoappreciatefairlyquicklyoverthefirstsixmonthsof2007.AccordingtoasurveyconductedbytheNationalDevelopmentandReformCommissionandtheNationalBureauofStatistics,Beihaiwasfoundtobetheleadingcityinpropertypriceincreases,amongChina's70largeandmedium-sizedcities,withagrowthrateof18.6%inJuly2007.FollowingitsduediligenceofEverSure,theCompanyhasalsosentabankdraftforthebalanceofthePurchaseConsiderationofapproximatelyHK$71.5milliontoMallesonson28August2007.LegalcaseagainsttheVendorPanHonghasdischargedallitsobligationsinaccordancewiththetermsoftheAgreement,whichstipulatedthattheAcquisitionwastobecompletedon31August2007.However,on31August2007,theVendorfailedtofulfillhisobligationsundertheAgreement,whichrequiredthetransferoflegalownershipof90.0%oftheentireissuedandpaid-upcapitalofEverSuretoLoerie.PanHong’slegalcounselinHongKonghasadvisedthattheVendordoesnothavegroundstowalkawayfromthetransactionandhasaccordinglycommittedamaterialbreachoftheAgreement.Accordingly,theCompanyisoftheviewthatithasastronglegalcaseagainsttheVendortoseekenforcementofspecificperformanceoftheAgreementandintendstocommencelegalproceedingsagainsttheVendorinduecourse.FinancialeffectsSubjecttothecompletionofstatutoryexternalauditingforthefinancialyearending31December2007(“FY2007”),theremaybeanimpactontheCompany’sandGroup’sfinancialperformanceandnetassetvalueforFY2007ifforanyreasonourclaimagainsttheVendorisnotsuccessfulorifspecificperformanceoftheAgreementisnotgrantedtousbythecourtsinHongKonganddamagesawardedarenotcommensuratewiththegaininvalueofthesharesinEverSureorifitissubsequentlydetermined(basedontheInternationalFinancialReportingStandards)thattheEverSureGroupshouldnotbeincludedforthepurposesoftheCompany’sandGroup’sfinancialreportinginviewofthelegalproceedinginstituted.TheCompanywillissueupdatesonanymaterialdevelopmentsinrespectoftheaboveproceedingsasandwhenappropriateByOrderoftheBoardWongLamPingExecutiveChairman3September2007ForMediaandInvestorRelationsenquiries,pleasecontact:[e-mail]@octant.com.sgMobile9664758290909887Office62202842Page2of2