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Debt-ridden Gionee unveils reorganization plan

Gionee is going bankrupt. Photo:

China's leading smartphone manufacturer Gionee on Monday unveiled a framework bankruptcy and reorganization plan after a year-long debt crisis paralyzed its major business operations, according to the Beijing-based financial magazine Caixin.

Most creditors have agreed with the plan, with reorganization details to be finalized, the magazine reported.

In November, Gionee began to prepare for bankruptcy, and employed the Shenzhen-based assets management company Fuhai Yintao as its consultant.

As of the end of August, Gionee's total debt has reached over 20.2 billion yuan ($2.9 billion), and the market value of its main assets has been estimated at 7.5 billion yuan, according to Fuhai Yintao.

The tech company's debt of nearly 19.4 billion yuan are ordinary claims, said Fuhai Yintao. It has 648 ordinary creditors, among which only eight with 5.8 billion yuan of credit have collateral security.

According to the plan, Gionee has 34 financial institution creditors, including banks, security companies, loan and trust companies, and funds. Some 17 banks hold direct claims.

Guangdong Nanyue Bank, Ping'an Bank, and Jiangsu International Trust Company are the three biggest creditors, holding direct principals of 1.8 billion yuan, 1.3 billion yuan, and 1 billion yuan respectively, according to the plan.

Other financial institutions include China Construction Bank, China Merchants Bank, and Bank of China, the plan noted.

Fuhai Yintao suggested that Gionee's debt reorganization be spread over five years, and a special assets management company and an operating company be founded after the reorganization, whose shares would be owned by all creditors.

The assets management company will be in charge of the assets that Gionee can realize, according to Fuhai Yintao. The operating company will engage in mobile phone brand licensing and mobile Internet services.

After starting the reorganization process, Gionee's original shareholders and management will be required to attract strategic investors, said Fuhai Yintao.

Based on current market valuation, Gionee's most valuable assets are its share in WeBank, a Tencent-backed Internet bank, and Gungdong Nanyue Bank, the Gionee Building, and the Dongguan Industrial Park, worth 3.1 billion yuan, 1.6 billion yuan, 1.8 billion yuan and 0.8 billion yuan respectively, according to Fuhai Yintao. Among them, the 3 percent share in WeBank holds the largest value-added space.

Liu Lirong, founder and CEO of Gionee, once told to his parts suppliers that the value of WeBank can reach 50 billion yuan once going public, which means that the company can rely on the shares to pay its debts.

However, several suppliers interviewed by Caixin cast doubts on the possibility of Gionee being able to reverse its declining business, as well as the potential of WeBank.

Founded in 2002, Gionee holds about 6 percent of China's smartphone market, following other handset brands like Huawei, Xiaomi, Oppo, and Vivo, which held a combined 78 percent market share in the third quarter, according to a report by the research agency Counterpoint.

Gionee has been losing money since the beginning of 2013, with average losses of no less than 100 million yuan per month between 2013 and 2015, with the monthly loss further widened to no less than 200 million yuan in the past two years, according to Liu.

Earlier this month, Liu admitted to a loss of "a bit over 1 billion yuan" in gambling at the Hong Kong-listed Imperial Pacific Resort casino on the island of Saipan as news that he had used billions of company assets to gamble went viral online, reported Chinese business newspaper Securities Times.

But Liu denied that Gionee's current financial troubles were primarily the result of his gambling, attributing the business failure to increased industry competition and poor relationships with parts suppliers, according to the newspaper.

On October 26, a court in Shenzhen added Liu to the country's blacklist of social credit.

According to a statement released by the court, he must pay over 200 million in debt before he can be removed from the list.

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