The company said on September 13 last year that it faced lawsuits from banks and customers with combined claims totalling 594 million yuan (US$74.3 million).

Despite the huge loss, Kelon's shares staged a strong comeback yesterday. Its A shares closed yesterday at 2.36 yuan (30 US cents), up 4.89 per cent on the previous day, better than yesterday's overall performance of the Shenzhen Stock Exchange, where prices dropped 1.43 per cent.

But Chen Yuanwang, an analyst at China CITIC Securities, explained that yesterday's good performance of Kelon shares was more than likely a result of short-term speculative behaviour.

"The shares hike may be due to their low price," Chen told China Daily.

Kelon's yuan-denominated shares traded in Shenzhen dipped 0.9 per cent on Friday to reach a low of 2.25 yuan (28 US cents). The company's Hong Kong-traded shares have been suspended since June 16 last year.

Despite its current problems, "Kelon's brand value and products mean that the company is still a good shell," Chen explained.

"If the ongoing restructuring of Hisense and Kelon proceeds smoothly, Kelon's prospects may become much better afterwards. But for the moment, Kelon shares are not appealing to institutional investors."

Qingdao-based Hisense has secured a 26.43-per-cent stake in Kelon Electrical Holdings for 680 million yuan (US$84.9 million), becoming its largest shareholder, but the stock transfer is still ongoing, the company said in the statement.

Hisense promised in its annual report that the company would immediately restructure Kelon once the transfer is completed.

The reshuffle measures include injecting the quality assets and business of Hisense's air conditioner section into Kelon, improving Kelon's financial status and credit.

(China Daily 08/15/2006 page9)

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