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China’s home appliance giants Gree, Midea raising capital to buffer shortfall of sales resulted from epidemic
CKN
2020/03/05 06:27:10
3,257

Mar 05, 2020 (China Knowledge) - China’s home appliances companies are most well-run and lucrative by global standards. Besides bestowed with the largest consumer market and most-efficient supply chains in this sector, most of the large manufacturers are highly profitable and offer above-level dividends. The sudden exogenous shocks from the COVID-19 outbreak poses enormous challenges to China’s home appliance manufacturers. Companies’ cash flow during this trying time is the lifeline to most businesses.

First, it was Midea Group that announced to raise RMB 20 bln; and, days later, Gree Electric Appliances seeking RMB 18 bln. But, the reasons that Gree (000651) and Midea Group (000333) publicly said recently that their fundraising was “to broaden their financing channels, optimize financing structure and improve liquidity management to meet the capital needs for strategic development”. This raises the question of how minimal the financial impact could be, and what these companies handle the financial losses, slowed production and other financial woes resulted from the 6 weeks of compulsory homestay quarantine.

Many investors believe the companies' case for raising capital is weak. For an instant, as at the end of Q3 2019, Gree had more than RMB 130 bln in cash, and Midea accumulated more than RMB 50 bln. Less than a month ago Midea even announced an RMB 5.2 bln share repurchase plan.

To be specific, the impact of the COVID-19 epidemic, resulting in short-term cash flow shortage, is one of the important reasons. For Jan and Feb, due to the impact of the epidemic, the performance of the home appliance industry was under significant pressure. On the one hand, numerous shopping malls were closed for as long as one month, dealers were unable to operate normally due to lack of stocks for sale. In addition, real estate which is an important yardstick of estimating home appliance sales ceased operating their sales showroom. Though property developers managed to salvage the sales the online sales platform wasn’t bringing in enough to the level during the peak season, from Jan to Feb, for home sales.

Therefore, any detail reporting or timely filing with the exchange from the home appliances giants to inform investors the impact and losses on their businesses is key to build investors’ confidence. 

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