PE investors compete for minority stake in China's Gree

The winner will pay at least RMB39.8 billion ($5.5 billion), according to a filing by Shenzhen-listed Gree. Each consortium has already made a downpayment of RMB6.3 billion. Gree's stock has climbed more than 30% since the potential deal was announced in April. It was trading at RMB58.85 as of mid-morning on September 6, valuing the company at approximately RMB354 billion.

The seller is Gree Group, which owns 18.22% of Gree Electric in total. Gree Group is wholly controlled by the Zhuhai government through the local arm of the State-owned Assets Supervision and Administration Commission (SASAC). The parent also controls Gree Real Estate, which is listed in Shanghai.

Gree Electric is led by Mingzhu Dong, who enjoys an unusually high profile for the head of a state-controlled business. Dong even took over from actor Jackie Chan in an advertising campaign for Gree Electric's air conditioning units, effectively making her face recognizable to most households in China.

Since Dong took over in 2012, Gree Electric's revenue has doubled. It reached RMB200 billion in 2018, up 33% year-on-year, while net profit increased 17% to RMB26.2 billion.

However, growth has begun to slow in the company's core air conditioning business in recent years as the industry saturates. Revenue rose 4.6% to RMB79.3 billion in the first half of 2019, while air conditioner sales in China as a whole fell by 1.4%. Gree Electric saw faster growth in sales of smart phones and other devices like rice cookers, but their revenue contributions were just RMB415 million and RMB2.6 billion, respectively.

Starting in 2015, Dong sought to diversify the business, although a foray into mobile phones has generally been adjudged unsuccessful. In 2016, she proposed the acquisition of an electric vehicle manufacturer but this was vetoed by shareholders. Dong responded by threatening to withhold dividend payments. 

Later the same year, she was removed from her position as chairman of Gree Group, while remaining head of Gree Electric. Dong personally controls 0.74% of Gree Electric and holds a further 8.91% through a separate entity backed by other investors.

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• Topics
• Greater China
• Consumer
• PIPEs
• China
• Hopu Investment Management
• Hillhouse Capital Management