Gree's big change! State-owned assets sold controlling stake for 40 billion yuan

Gree Electric Appliances announced on the evening of April 8 that Gree Group plans to transfer 15% of the total share capital of Gree Electric Appliances held by Gree Group through an agreement by publicly soliciting transferees.

Gree Electric Appliances said that Gree Group is still further studying and formulating the specific plan for this public solicitation and transfer. This public solicitation and transfer still needs to obtain approval from the state-owned assets supervision and administration department and other relevant agencies. The stock will resume trading on April 9.

The equity transfer price of Gree Electric Appliances shall not be lower than the arithmetic average of the daily weighted average price of the 30 trading days before the indicative announcement date (April 9, 2019). The final transfer price shall be subject to the results of public solicitation and approval by the state-owned assets supervision and administration department. After the completion of this transfer, the controlling shareholder and actual controller of Gree Electric Appliances may change.

Gree Group, the major shareholder of Gree Electric Appliances, is the largest state-owned enterprise in Zhuhai. Why did Zhuhai City want to "marry the beautiful girl first" and transfer the control of Gree Electric Appliances, which has a great performance?

A senior industry insider close to Gree told the First Financial reporter last week that as early as last year after the Spring Festival, the Zhuhai Municipal Government had discussed whether Dong Mingzhu would continue to serve as the chairman of Gree Electric. Gree Electric is currently the largest industrial enterprise in Zhuhai. If a change is made, it will be good if the change is good, but it will be held accountable if it is not. At present, the state encourages state-owned enterprises to promote mixed ownership reform, especially in competitive industries. The air-conditioning and home appliance industries where Gree Electric is located are increasingly competitive and meet the conditions for promoting mixed ownership reform. Therefore, the Zhuhai Municipal Government had basically determined the idea of ​​letting Dong Mingzhu continue to serve and then promoting Gree Electric's mixed ownership reform.

"This kills three birds with one stone." The senior industry insider believes that, first, in the future, whether Dong Mingzhu will be re-elected and how Gree Electric Appliances will operate will no longer be decided by the government, but by the market. After all, air conditioning and home appliances are highly competitive industries; secondly, the Zhuhai Municipal Government can recover a large sum of money for other investment and development projects; thirdly, strategic investment can be introduced to improve Gree Electric Appliances' governance structure and scientific decision-making mechanism. After all, "the Gree brand is a valuable resource for Zhuhai City."

According to the official website of Gree Group, by the end of 2018, the total operating income of Gree Group is expected to exceed 200 billion yuan, the net profit will exceed 26 billion yuan, and the net profit attributable to state-owned shareholders will exceed 4 billion yuan. At present, Gree Electric is the largest source of revenue and profit for Gree Group. In 2018, Gree Electric is expected to achieve a total operating income of more than 200 billion yuan and a net profit attributable to shareholders of listed companies of more than 26 billion yuan, with year-on-year growth rates of approximately 33% and 16%-21% respectively.

Gree Group started its "second entrepreneurship" in 2018. Zhou Lewei, chairman of Gree Group, said that in the next step, Gree Group will aim to "build a first-class domestic investment and innovation-driven comprehensive enterprise" and improve the strategic structure of "one core and four pillars".

The so-called core is to focus on the real economy and expand the high-end manufacturing industry cluster. Gree Group will continue to fully support Gree Electric to become bigger, stronger and better, expand the layout of diversified new industries, build a world-class industrial group, and accelerate the transformation and upgrading of the group's new technologies. The four pillars are to further optimize the strategic layout in financial investment, construction investment, building installation, and modern services. For example, financial investment is mainly based on industrial investment, focusing on industrial fields such as intelligent manufacturing, new materials, and medical health, and exploring pilot projects for state-owned investment platforms.

Obviously, in the future Gree Group hopes to change from "managing assets" to "managing capital".

According to Gree Electric Appliances' third-quarter report last year, as of September 30, 2018, Zhuhai Gree Group Co., Ltd. held 18.22% of Gree Electric Appliances' shares, making it the largest shareholder; Hebei Jinghai Guarantee Investment Co., Ltd. held 8.91% of Gree Electric Appliances' shares, making it the second largest shareholder; Hong Kong Central Clearing Company Limited, China Securities Finance Co., Ltd., and Qianhai Life Insurance Co., Ltd. held 7.86%, 2.99%, and 1.92% of Gree Electric Appliances' shares, respectively, making them the third, fourth, and fifth largest shareholders, respectively.

It is worth noting that Gree Group did not transfer all of its 18.22% equity this time, but only transferred 15% of its equity, leaving 3.22% of Gree Electric Appliances shares. On the one hand, it still retains certain voting rights, and on the other hand, it can reduce the financial pressure of the "takeover party".

In January 2019, Dong Mingzhu was re-elected as a new director of Gree Electric at the shareholders' meeting of Gree Electric, and was re-elected as the chairman of Gree Electric by the board of directors. The above-mentioned senior industry insiders predict that the management team, staff team and core dealers of Gree Electric, led by Dong Mingzhu, will be the strong contenders to "take over" the 15% equity of Gree Electric.

However, based on the share price of 47.21 yuan per share before Gree Electric's suspension, the valuation of 15% of Gree Electric's equity is as high as 42.598 billion yuan. How Gree Electric's management team, led by Dong Mingzhu, its staff team and Gree's core dealers can raise this huge amount of money is a big challenge.

The outside world also predicts that Gree Group's public transfer of the 15% stake in Gree Electric Appliances may transfer part of it to strategic investors, and the rest to Gree Electric Appliances' management, employee team and core dealers. This can not only reduce the pressure on Gree Electric Appliances' management to take over, but also improve Gree Electric Appliances' governance structure and scientific decision-making mechanism, and also bring strategic resources to Gree to face the challenges of the 5G era. In short, it is necessary to further stimulate the enthusiasm and potential of the management and employees, while preventing insider control, and promote a new round of growth for Gree Electric Appliances.

The above-mentioned senior industry insiders believe that Jinghai Guarantee and Gree Electric's management are acting in concert. Jinghai Guarantee's main shareholder is Gree's core distributor, which already holds 8.91% of Gree Electric's shares. Together with Dong Mingzhu's 0.74% of Gree Electric's shares, the two together hold 9.65% of Gree Electric's shares. Since Gree Electric's equity structure is relatively dispersed, the management led by Dong Mingzhu only needs to acquire another 7%-8% of Gree Electric's shares to gain control of Gree Electric's board of directors, thereby solving the funding problem relatively easily.

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