China's TCL's Stock Slides as Its Board Plans to Transfer Its Assets to New Shell
Liao Shumin
/SOURCE : yicai
China's TCL's Stock Slides as Its Board Plans to Transfer Its Assets to New Shell

(Yicai Global) Dec. 12 -- Chinese multinational electronics company TCL, which is headquartered in Huizhou, Guangdong province, announced the sale of part of its assets to a new firm held by its company's executives for about CNY4.8 billion (USD689 million) on Dec. 8. 

Investors looked askance at this proposal and said the company's proposed fire-sale sell-off of its assets induced a 6 percent drop in its stock price this week.

"I received the restructuring plan just two days before the board meeting convened and was given inadequate time to analyze such a complex reorganization resolution to enable me to formulate a correct and accurate opinion," said non-executive director He Jinlei, who abstained from voting on all 20 proposals which passed at the company's sixth board of directors meeting.

TCL released nearly 50 announcements on Dec. 8 whose core content was that the company planned to sell its consumer electronics, home electric appliances and intelligent terminal businesses with annual revenue of about CNY50 billion in a package to TCL Industries Holdings (Guangdong), which is a new firm set up by the firm's board chairman Li Dongsheng and other executives, for CNY4.8 billion. 

Formed in 1981, TCL is a large manufacturer of home electric appliances. It achieved revenue of over CNY110 billion last year and will lose half this business income if the transaction goes through. 

The company will transfer its focus to the semi-conductor display business of Shenzhen-based China Star Optoelectronics Technology -- also owned by TCL's chairman Li Dongsheng, with TCL is one of its shareholders -- after the completion of the restructuring, accumulating funds, talents, technologies and other resources to dedicate to the growth of the semi-conductor display and materials businesses, TCL said.

China Star earned abundant profits for TCL in previous years when the sector's global market was thriving. Its profits are rapidly shrinking, however, with the market lately wallowing in the doldrums.

The panel sector features high investment and a long payback and is easily and greatly susceptible to the market environment, while its profits are not as stable as those of the traditional home electric appliance sector, all key factors that trigger investors' concerns.

TCL will pay CNY800 million out of the total CNY4.76 billion on behalf of TCL Industries Holdings, the announcement continued, which means that the funds the newly-established firm is actually offering are a mere CNY3.9 billion.

The dubious position the buyer is in is another circumstance fueling debate among investors. TCL Industries Holdings was set up on Sept. 17, and its legal representative is the same Li Dongsheng, chairman of the asset seller TCL, and its shareholder is Huizhou-based Lidatiancheng Equity Investment, which TCL's executive team holds.

The newly-founded firm has not operated to date, but nevertheless twice received investment within a few days earlier this month, after which TCL proposed this sale which readily prompts the conclusion that TCL Industries Holdings came into being solely as a hollow vessel to receive the former's assets. 

The deal must now undergo the acid test of the shareholders' meeting, at which point investors may finally get the chance to actually speak with their own voices.

Editor: Ben Armour

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Keywords: TCL Corporation , Asset Restructuring