Ailing Chinese appliance giant Guangdong Kelon Electrical Holdings Ltd showed soaring losses in a report that led its auditors to warn the company might not survive.
Hong Kong-listed Kelon cited intense competition and uncollected debts as key reasons for the surge in its net loss to 1.56 billion yuan (US$188.9 million) last year from 830 million yuan (US$100.5 million) in 2000.
The leading Chinese maker of refrigerators and air conditioners is among scores of appliance makers struggling with bloated inventories and stale market strategies as their profit margins have dwindled in a years-long price war.
"There exists great uncertainty in this company's ability to continue operating," said auditor Andersen Huaqiang CPA, the mainland Chinese affiliate of Arthur Andersen, in a note contained in Kelon's annual report.
Kelon insists that it's doing better and added it plans to replace its auditors this year with the accounting firm Deloitte & Touche Tohmatsu.
Intense competition is only part of Kelon's problem.
"The company focused on the rural market and believed it would grow the fastest," said Mario Zhu, an analyst with ABN Amro in Shanghai. "They actually got it wrong."
Kelon has a legacy of debts, complicated financial dealings and unstable management found in many listed Chinese companies that are used as fund-raising vehicles for their mainland parents.
The auditors said they could not vouch for the accuracy or authenticity of the data provided by Kelon because of the resignations of most of its top management last year and the complicated financial relationship between Kelon and its former parent, Guangdong Kelon (Rongsheng) Group Co, which is based in Shunde, in the southern province of Guangdong.
"For Kelon, the main problem is the relationship with the parent," said Zhu. "It is rare, even for a domestic company, for auditors to express such an opinion."
Last autumn, control of the company was acquired by mainland refrigerant maker Greencool Technologies Holdings Ltd.
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