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CSRC: Kelon Chief Did Wrong

The China Securities Regulatory Commission (CSRC) said it believes Gu Chujun, the controversial board chairman of Kelon, has violated several articles of the securities law, including inflating profits and capital embezzlement.

Yesterday it announced the results of its probe into Kelon, a once-renowned refrigerator maker that is now in deep trouble. Gu is likely to be punished by the CSRC which has already asked the police to detain him. Officers are investigating if there is also a criminal case to answer.

Five other senior Kelon figures have also been detained.

Meanwhile, three other listed firms owned by Greencool, and linked to Kelon Chairman Gu Chujun, also appear to be suffering.

Greencool's 82.8 million shares in Meiling Electrical Appliance were frozen by the Foshan Intermediated Peoples' court, according to Meiling's statement yesterday. On Tuesday, the Shenzhen Intermediate People's Court in South China froze Greencool's 115 million shares in Yaxing Bus. And the Xiangfan Automobile Bearing Group wants to terminate its share transferring contract with Greencool.

However, Kelon might be having trouble but it is still quite popular with potential buyers. More than ten leading electrical appliance firms at home and from abroad including Hisense, Midea and Electrolux are queuing up to buy Kelon.

"Kelon's brand name and production lines are extremely attractive for potential buyers, especially in an industry filled with red-hot competition," Dong Chen, an analyst with Huaxia Securities, told China Daily. "By taking over Kelon, they can cut costs through economies of scale."

For the time being, though, Kelon must restore its relationship with suppliers and franchisers, recover production and clear up its balance sheet, insiders say.

"Winning support from suppliers and franchisers is critical for Kelon's survival," said Xue Hui, the vice-president of Meiling Electrical Appliances.

According to industry practices, electrical appliance makers pay their bills soon after they get raw materials from suppliers. However, due to the credit crisis at Kelon, suppliers began to press for earlier payment, saying that otherwise they would stop their supplies. "This is really troublesome," Xue added.

"And franchisers also matter," Xue explained. "They usually give money first to manufacturers, but now some of them have stopped their orders for fear that Kelon may fail to provide the goods, which is a fatal blow to the firm."

An anonymous manager at Kelon disclosed that many suppliers and franchisers stopped doing business with Kelon after the CSRC launched its investigation into Kelon in April.

Liu Congmeng, who is responsible for running Kelon at the moment, is busy contacting them.

Liu's efforts seem to be paying off. According to the Shanghai Securities News, Kelon has just received an overseas order valued at about US$2 million.

(China Daily August 4, 2005)

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