Lixil unit files for insolvency less than 18 months after PE exit
Japanese bathroom fitting company Lixil is set to lose at least JPY41 billion ($337 million) after its German-listed Chinese subsidiary, Joyou AG, filed for bankruptcy. Lixil acquired the business after it bought German faucet maker Grohe from TPG Capital in late 2013.
In a disclosure, Joyou said it had started insolvency proceedings after writing off $300 million in guarantees given to creditors of a subsidiary, Joyou Hong Kong, which is a holding company for eight operating business in China's Fujian province. The company has also dismissed Joyou's founder and chairman Jianshe Cai, and his son and deputy chairman Jilin Cai. It is looking to launch a legal action against the pair.
Lixil paid TPG and the private equity arm of Credit Suisse (formerly CSFB Private Equity) JPY400 million to acquire Grohe. According to a Tokyo Stock Exchange filing, Joyou Grohe Holdings and Grohe Group hold a combined 72.3% stake in Joyou.
Joyou - which was set up by Cai in 1988 - signed a co-operation deal with Grohe in 2009 and listed in Frankfurt a year later. Grohe, which was bought by TPG and the Credit Suisse unit in May 2004 in a secondary buyout from BC Partners, acquired the business in 2011. When TPG and its associates sold their 87.5% stake in Grohe in 2013, the transaction was said to be the largest-ever German investment by a Japanese company.
Lixil issued a statement saying it was working in tandem with Joyou to investigate the facts relating to company's finances. It added that it will continue to conduct a broader investigation "to gain a better understanding of the root causes for the current circumstances and identify and design appropriate remedial actions."
The news comes a month after the company told shareholders that there would be a special audit and temporarily suspend Cai and his son. Shares in the company have fallen from EUR16.54 just before the announcement on April 24 to EUR0.36 on the previous close, bringing the company's value down to around EUR9 million ($9.8million) from EUR396 million.
Joyou - which relies heavily on its Chinese operations - reported pre-tax profits of EUR50.7 million and EUR398 million in sales last year, compared to EUR41.7 milliom and EUR358 million, respectively, the previous year.
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