State takes bigger role in purchase of Kelon

PUBLISHED : Wednesday, 05 April, 2006, 12:00am
UPDATED : Wednesday, 05 April, 2006, 12:00am

Mainland leadership seeks to ensure smooth acquisition by Hisense of scandal-hit fridge maker

The mainland's top leadership has intervened to ensure that state- run conglomerate Hisense Group takes control of scandal-ridden Guangdong Kelon Electrical Holdings, the country's largest refrigerator maker.

A subsidiary of Hisense, Qingdao Hisense Air-Conditioner, signed an agreement in September last year to acquire the controlling 26.43 per cent stake in Kelon held by its former chairman, Gu Chujun, who is in jail for alleged economic crimes.

However, the deal almost collapsed last month after Gu refused to sell the stake, deeming the price too low, and his shares looked destined for auction to other companies.

Last Tuesday, the case was discussed at the State Council level, according to a mainland report, and Hisense has increased its offer with a conclusion to the acquisition expected in the next few months.

'Very senior mainland government officials were involved in this deal. This went up to the highest political level,' an investment banker said.

Kelon, which is listed in Hong Kong and Shenzhen, employs 10,000 workers in its home district of Shunde, Guangdong province.

'Previously, the Shunde government opposed Hisense's purchase of Kelon because the price was too low,' said an executive with Guangdong Donlim Kitchen Group, an appliance maker based in Shunde.

'Kelon is an important company in Shunde linked to the local government. Selling Kelon too cheap would not benefit Shunde and its government.'

The Shunde government owns a minority stake in Kelon, whose board includes former Shunde official Li Zhenhua.

A Shunde government company previously ran Kelon until fraud and embezzlement was uncovered. Gu took control of the company in 2002 before being dismissed three years later as a new scandal surfaced.

'The Shunde government asked Donlim to acquire Kelon recently, but we refused because Kelon was too big for us to digest,' the Donlim executive said.

While the Hisense acquisition looked in doubt, several mainland firms expressed an interest in acquiring Kelon, a Kelon manager said. 'Hisense has decided to acquire Kelon to prevent other companies from doing so,' he added.

Several big international financial institutions also expressed an interest in investing in Kelon on behalf of themselves or their clients recently, the banker said.

Once Hisense completes the acquisition, Kelon's board, which was mostly appointed by Gu, is expected to be replaced by Hisense's management.

Donlim, one of the world's largest kettle makers, had shelved plans to list in Hong Kong and was seeking approval to list on the mainland, probably in Shanghai, the executive said.