Caixin
Apr 11, 2019 06:16 AM

Exclusive: Private Equity Firm Hopu May Bid for Gree Stake

After news of the stake sale, shares of Shenzhen-listed Gree Electric surged Tuesday by the 10% daily limit. Photo: VCG
After news of the stake sale, shares of Shenzhen-listed Gree Electric surged Tuesday by the 10% daily limit. Photo: VCG

There may be competition for a 15% stake in state-backed Gree Electric Appliances as the Chinese private equity firm Hopu Investments is planning a purchase bid, sources familiar with the matter told Caixin.

Earlier, several people close to Gree Electric told Caixin that company Chairwoman Dong Mingzhu was also interested in buying a 15% interest being put up for sale by Zhuhai city government-backed Zhuhai Gree Group, owner of 18.22% of Gree Electric.

After news of the stake sale, shares of Shenzhen-listed Gree Electric surged Tuesday by the 10% daily limit. The stock jumped an additional 9.99% Wednesday, pushing the potential value of the deal to $7.56 billion from $6.1 billion before the price run-up. Gree Electric is the world’s biggest maker of air conditioners.

To buy the Gree stake, Hopu intends to join with a financial investment institution in Macau, sources familiar with the matter told Caixin. Another government-backed institution told Caixin that it’s also closely monitoring the Gree Electric stake sale.

Dong, the powerful woman behind Gree Electric’s success, holds 0.74% of the company as the 10th-largest shareholder. She has close relations with the company’s second-largest shareholder, Hebei Jinghai Guarantee Investment Co. Dong and Hebei Jinghai, together controlling 9.65%, are commonly believed to act in concert. Hebei Jinghai also controls Gree’s dealer system throughout the country.

Gree Electric’s management has a history of feuding with its state-backed parent. In 2012, the Zhuhai government parachuted Zhou Shaoqiang, a government official, into the company as Communist Party boss. Zhou was also nominated for a board seat, but his appointment was blocked by other shareholders including Hebei Jinghai.

People close to the company said the Zhuhai government and the parent company disapproved of Dong’s “aggressive” management style. Dong has also publicly expressed discontent with the government’s involvement in governance of state-backed enterprises.

The parent group has mulled selling its stake in Gree Electric since early 2018 and has reached out to Dong multiple times, a person close to Gree Electric’s senior management said.

There were rumors that Chinese e-commerce giants JD.com and Alibaba Group, electronics manufacturer Foxconn Technology Group and chip maker Tsinghua Unigroup Co. might be potential buyers of the Gree stake. JD.com, Alibaba and Unigroup denied the rumors. Foxconn declined to comment.

Hopu is one of China’s top private equity firms, established in 2007 by former Goldman Sachs Group partner Fang Fenglei and former KPMG Chairman Dominic Ho.

People close the matter told Caixin that Hopu’s proposal could be attractive to the parent group. Hopu has invested in companies in integrated circuits, artificial intelligence, warehousing logistics and new energy. With a leading manufacturing platform like Gree Electric, Hopu could build an Internet of Things industry chain and help the company diversify its operations beyond the air conditioner business, those people said.

Gree’s main air conditioner business dominates the domestic market with a 35% market share, according to Euromonitor International. But that is down from about 40% in 2013 in the face of intensifying competition from rivals such as Haier Electronics Group and Medea Group.

Meanwhile, the company’s diversification efforts have faced headwinds. In recent years, it has tested the waters in fields including mobile phones, automobiles and chips, but none of it has shown signs of success.

Dong has set a sales target of 600 billion yuan by 2023, a 200% expansion from 2018 revenue. To achieve that goal, Gree Electric is in urgent need of finding a foothold for a second main business and speed up expansion in overseas markets, industry analysts said.

Contact editor Han Wei (weihan@caixin.com)

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