• Shares suspended
• Gree Group planning share transfer
• Further fragmentation in ownership?

Share Suspension With Possible Change in Ownership Structure

Shares of Gree Electric Appliances were suspended on 1 Apr as its state-owned controlling shareholder was planning a partial stake transfer; recall that Gree Electric is controlled by the Zhuhai city government which owns all of Zhuhai Gree Group. Gree Group had an 18.22% stake in Gree Electric as at end Sep 2018. The deal, which could result in a change of the ownership structure, is subject to preapproval by the state asset supervision and administration authority.

Who Will Call the Shots Eventually?

Looking at Gree Electric’s shareholders list, the largest is Zhuhai Gree Group, followed by Hebei Jinghai Guarantee Investment Co at 8.91%, HK Securities CC Nominees at 7.86%, China Securities Finance Corp and other funds. The individual holding the largest stake is Ms. Dong Ming Zhu at 0.74%, who is the Chairwoman and President of Gree Electric. Unlike peers such as Qingdao Haier and Midea Group, Gree Electric’s shareholding is more fragmented. It has been pointed out by market watchers that if the Zhuhai government were to transfer a partial stake to another party with currently no holdings in Gree Electric, the balance of power could shift towards the management team.

Possible Reasons for Move

With the stake sale/transfer, some now believe that the company may find it easier to issue stock for M&A as it seeks to diversify beyond the air-conditioner business. It is also possible that a strategic investor in a growth area that Gree Electric has identified could be brought in, such as one in the semiconductors/chips business. This could also be a continuation of the group’s shareholder reform – in 1996 (time of listing), Gree Group held 60% of Gree Electric.

A series of rights issues, followed by a 2005 shareholder reform program and staff incentive scheme, has seen Gree Group with a lower shareholding over the years. Meanwhile we wait for an official announcement from the company, but roll over our valuations such that our fair value estimate rises slightly from RMB47.30 to RMB48.48.

Source: OCBC Research - 3 Apr 2019