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Sichuan Changhong Electric Appliances Co Ltd, China's second-largest television maker, yesterday said that it would receive a 70 percent stake in a Hong Kong-listed company as collateral for part of a debt owed by US consumer electronics distributor Apex Digital Inc.
Changhong claims Apex owes it nearly half a billion dollars for TV sets the Chinese firm made for the US company.
According to an official statement released by the Chinese TV manufacturer, Changhong will get 222.9 million shares in China Data Broadcasting Holdings from Apex and its chairman and co-founder David Ji.
Apex and Ji hold respectively 51.94 percent and 18.94 percent of China Data. The company's shares have been suspended from trade since December 28 last year.
Ji was detained last October in Shenzhen over alleged fraud related to bank bills.
The shares, worth HK$321 million (US$41.3 million) based on China Data's last trading price of HK$1.44 (18.5 US cents), will be used as collateral to cover part of the debt owed by Apex, said Changhong in the statement.
Company officials from Changhong declined to comment further on the announcement.
The Chinese TV manufacturer has been suing its business partner in the US for failing to pay an alleged US$467.5 million debt dating from mid-December in Los Angeles, California.
Changhong, which is listed on the Shanghai Stock Exchange, posted its first annual loss for the year ending December 2004. The loss totalled a hefty 3.68 billion yuan (US$444.7 million), due to unpaid debts from Apex, and the failure of short-term investments.
Earlier Chinese media reports said Changhong planed to buy Apex, a move considered possibly the "only option" for Changhong to solve its bad debt problem with Apex, as it is unlikely to collect the whole debt owed by Apex.
Also, the move could be good for Changhong's future expansion into overseas markets, which the company has been striving for, according to media reports.
"You cannot rule out the possibility (of buying Apex) even today," said Zhang Bing, an analyst with CITIC (China International Trust and Investment Corp) Securities Co Ltd.
"The 70 percent stake in China Data is insignificant compared with the whole debt."
Changhong started co-operating in 2001 with Apex, which is a leading low-end TV and DVD supplier in the US.
Apex generated about US$373 million in sales in 2003, supplying big consumer electronics retailers such as Circuit City, Best Buy and Wal-Mart in the US.
Changhong was one of Apex's major suppliers and exported TV sets from China under the Apex brand.
Founded in 1958 as a military-backed enterprise, Changhong undertook a rapid expansion in the 1990s, becoming one of the country's top three TV makers.
To escape from the debilitating price war in the domestic market, Changhong redoubled its efforts to sell TVs abroad, a strategy that some analysts said it pursued too aggressively.
The hefty loss in 2004 may come as a heavy blow to Changhong, but it seems the Chinese TV maker will continue with its expansion strategy on the international market despite its problems with Apex, according to analysts.
The company received credit totaling 12.8 billion yuan (US$1.5 billion), in January from nine Chinese banks to shore up its finances.
(China Daily July 20, 2005)
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