Hisense, one of China's leading white goods manufacturers, intends to buy a stake in Kelon, a once-renowned refrigerator maker that is now in deep trouble, an insider at Hisense told China Daily.

"We plan to buy part of Kelon, but the price has not yet been decided," said Zhu Shuqin, manager of brand marketing at Hisense.

According to Shanghai Securities News, Hisense has offered 1.1 billion yuan (US$136 million) to acquire about a quarter of Kelon's shares that are owned by Greencool. This is a good price, experts say.

Greencool, Kelon's largest shareholder, has a 26.43 percent stake in Kelon, with a total of 262 million shares.

According to Kelon's financial report for the first quarter of this year, each share is worth 2.89 yuan (36 US cents). This means Greencool has 757 million yuan (US$93.4 million) worth of Kelon shares, much lower than Hisense's bidding price.

A top manager at Hisense said there were various reasons for the high price.

"Hisense wants to make breakthroughs in refrigerator and air conditioning manufacturing, both are Kelon's strong points," he was quoted by Shanghai Securities News as saying. "Besides, Kelon is a household name and enjoys good quality assets."

Strong support from the local government where Kelon in based in Shunde, experts say, is also an important factor in attracting buyers to Kelon.

The local government has promised to create a favourable environment for Kelon's restructuring. Local banks and courts have also indicated they will help. Shanghai Securites News reported that local banks would not press Kelon to return its loans. Meanwhile, the people's court in Shunde has also postponed dealing with lawsuits against Kelon.

But according to a top manager with Midea, also a powerful potential buyer, the restructuring of Kelon will not be easy.

"Currently, Kelon's major assets are its production lines, which are not so valuable in acquisition terms," he was quoted by China Business News as saying. "Moreover, after a series of blows, Kelon's brand name and social prestige have shrunk."

The China Securities Regulatory Commission launched an investigation into Kelon in April, with the focus on capital embezzlement and inflated balance sheets.

The team finished its investigation late last month, but the results have not yet been made public.

"I don't think Midea will take over Kelon at a time when things are not that clear," the insider said.

What makes the situation even worse, five top Kelon managers, including Chairman Gu Chujun, have been detained by the police, according to a Kelon statement yesterday.

Meanwhile, other firms owned by Greencool, and linked to Kelon Chairman Gu Chujun, are also suffering.

Gu set up the Greencool empire through a series of acquisitions from 2001. It consists of some 30 enterprises, of which four are listed, and its businesses range from electronic appliances to cars. The takeover of Kelon was Gu's first major expansion move.

The other three listed companies under the control of Greencool are currently trying to turn themselves around.

And Shenzhen Intermediate People's Court, in South China, has frozen Greencool's 115 million shares in Yaxing Bus, according a company statement yesterday. Greencool is the largest shareholder of Yaxing Bus, with a 60.67 percent stake.

(China Daily August 3, 2005)