Guangdong Kelon Electrical Holdings Co, China's biggest refrigerator maker, said new parent company Hisense Group will provide as much as 600 million yuan (US$74 million) of funding to help the company stay in business.

"Kelon cannot get new bank loans," the company, based in the southern city of Foshan, said in a statement to the Shenzhen stock exchange. Hisense will also help Kelon sell as much as 1.4 billion yuan (US$172.6 million) of products by March, the statement said.

Hisense, China's sixth-biggest electronics company, this month agreed to buy a 26 percent stake in Kelon after Gu Chujun, the company's former chairman and controlling shareholder, was arrested on suspicion of economic crimes. Kelon was forced to halt some production between May and August as suppliers stopped shipments after the investigations were disclosed.

"Kelon's products are still competitive," said Chen Yichong, an analyst at Southwest Securities Co in Beijing. "The only legal threat the company faces is a capital shortage. With the funds, Kelon can come to life again."

Kelon, which also makes air conditioners and other products, faces lawsuits with combined claims totalling 594 million yuan (US$73.24 million) from banks and customers, the company said earlier this month. The appliance maker reported a net loss of 434.6 million yuan (US$53.5882) for the first half of this year.

The company last month fired chairman Gu, who was arrested with four other Kelon executives. The officials were held for suspected embezzlement and fraud and are also alleged to have inflated profits since 2002, the China Securities Journal, a newspaper affiliated with the official Xinhua News Agency, reported last month.

The funding will help ease the company's capital shortage, Kelon said in the statement. Kelon will receive the funding from a Hisense sales unit, which will receive a 1 percent commission on sales of Kelon products, according to the exchange filing.

Hisense, based in the eastern city of Qingdao, agreed to buy the 26 percent stake from Gu's Guangdong Greencool Enterprise Development Co, according to a September 15 statement by Kelon. The stake has been frozen by a court in the southern city of Shenzhen. Greencool and Hisense are attempting to remove the restrictions.

The acquisition gives Hisense economies of scale in an industry where overcapacity has driven down prices.

Hisense will more than double its annual production capacity of air conditioners to 7 million and boost its refrigerator capacity six-fold to 9.6 million, based on data on Hisense's website.

China produced 75 percent of the world's household air conditioners and 30 percent of refrigerators in 2004, according to the China Household Appliance Association.

Kelon is among a number of Chinese listed companies that have run into difficulties amid allegations of fraud and malpractice. Euro-Asia Agricultural Holdings Co was delisted in Hong Kong after the orchid grower's founder Yang Bin was sentenced in China to 18 years jail for fraud in July 2003. Shares of Wah Sang Gas Holdings Ltd, a provider of piped gas in China, have been halted since April 2004 amid police and regulatory probes into its finances.

Kelon's Shenzhen-traded A shares have been suspended since September 12. They have slumped 38 percent this year. The company's Hong Kong-traded shares have been halted since June 10.

Kelon's sales slipped to 4.6 billion yuan (US$567.2million) in the first half, from 4.9 billion a year earlier. The company has posted annual losses in three out of the past five years.

(China Daily September 28, 2005)