Hopu Group in talks to acquire $7b stake in China’s Gree Electric

Gree Electric Appliances Ltd. is displayed on an outdoor unit of a commercial air conditioner unit at the company's showroom in Zhuhai, China, on Wednesday, March 28, 2018. Gree is China's largest air-conditioner maker. Photographer: Justin Chin/Bloomberg

A consortium led by buyout firm Hopu Investment Management is in advanced talks to buy a minority stake in Chinese air conditioner maker Gree Electric Appliances Inc. from its government-owned parent, according to people familiar with the matter.

The negotiations are ongoing and might not lead to a deal, said the people, who asked not to be named discussing confidential deliberations. At Monday’s closing price, the 15% stake was valued at 47.4 billion yuan ($6.9 billion).

Gree Electric’s largest shareholder, state-controlled Gree Group, held about 18% of the company’s shares at the end of September, according to Bloomberg-compiled data. Some analysts have said its decision to sell, announced in early April, is in line with China’s push to reduce state ownership in highly competitive industries.

Representatives for Hopu and Gree declined to comment.

Gree Electric’s shares rose as much as 1.3% in early trading Tuesday before erasing gains. The stock was down 1.1% as of 10:55 a.m. in Shenzhen. The stake-sale announcement earlier this year triggered a surge in Gree Electric, with the stock peaking at 65.40 yuan on April 19. The shares have since reversed some of those gains.

Leading Position

The plan has also been cheered by analysts. Although Gree Electric is still in the leading position in terms of sales volume, its valuation has lagged behind rivals like Midea Group Co. by as much as 40%, said Citigroup Inc. analysts including Mark Li in April. The stake sale, by effectively privatizing ownership of the company, will “unlock value as it could enhance management incentives and operating efficiency,” they said.

Gree led the global household air-conditioner market with a 21.9% share in 2018, and has been China’s biggest air-conditioner seller since 1995, according to Gree’s annual report.

Ownership Reform

Gree said April 8 that the stake would be sold at no less than the average share price over the previous 30 trading days. That’s about 46 yuan, or 12% less than Monday’s closing price, data compiled by Bloomberg show. Any sale of the holding will require approval from the state assets regulator, Gree has said.

A deal would dovetail with China’s campaign of mixed ownership reform of its more than 180 trillion yuan ($26 trillion) of state-owned assets. Xiao Yaqing, chairman of the state-owned Assets Supervision and Administration Commission of the State Council, said recently that the country welcomes private and foreign players looking to make investments.

Bloomberg