Allying with Goldman Sachs, Midea to Raise RMB720 Million

November 25, 2006, Guangdong Midea Electric Appliance Co., Ltd. publishes a public notice, declaring that, in accordance with a signed agreement for directional issuance, it plans to introduce into GS Capital Partners Aurum Holdings, a wholly-owned subsidiary of Goldman Sachs Group Inc. as the overseas strategic investor of Midea Electric Appliance and issue directly to it 75,595,183 shares of Share A, and will use the fund raised to repay bank loans and increase circulating capital.
Midea Electric Appliance plans to issue 75,595,183 shares. On the basis of the principle that the issuing price may not be lower than 90% of the averaged price of the share during the 20 days prior to the public notice made under the decision of the Board of Directors and through the negotiation with the investor, the price is determined as RMB9.48. As the overseas strategic investor, GS Capital Partners Aurum Holdings, a wholly-owned subsidiary of Goldman Sachs Group offers to purchase all the shares issued by Midea Electric Appliance in non-public form. Calculated on the base of the total 705,951,826 shares of Midea Electric Appliance after this issuance, the proportion of shared held by Goldman Sachs Group will reach 10.71% (If the already-published option on 50 million shares of Midea Electric Appliance is fully exercised in the future, the Goldman Sachs Group share proportion will drops to 10%). In addition, the shares purchased by Goldman Sachs Group may not be transferred within the statutory period (3 years as specified in the laws in effect) after the completion of the non-public issuance.
In recent years, Midea Electric Appliance has enjoyed a sound and steady development, with its main business revenue increasing from RMB5.79 billion in 1999 to RMB21.31 billion in 2005 (RMB16.33 billion during January-September, 2006). Since the last fund raising through share placement in 1999, however, it has been seven years that Midea Electric Appliance raises no fund from the capital market. As a result, the asset-liability ratio of Midea Electric Appliance stays at a relatively high level. In 2003, 2004, 2005 and by the end of 3rd quarter in 2006, its asset-liability ratio (stated in combined statement) is 64.72%, 67.91%, 59.54% and 61.56% respectively. These figures not only exceed the averaged asset-liability ratio of all listed companies, but also are much higher than the averaged asset-liability ratio of all domestic companies in the same industry. A part of the fund raised through this directional issuance will be used to repay bank loans, and it is expected that the total sum of bank loans of Midea Electric Appliance will be reduced by RMB200 million. Calculated on the basis of the assets and liabilities by the end of 3rd quarter in 2006, the asset-liability ratio of Midea Electric Appliance will drop to around 57%.
The introduction of overseas strategic investor will help Midea Electric Appliance to perfect its governance structure, enhance its management level and improve its international influence and corporate image. Furthermore, with the fund raised being used to repay some bank loans and increase the circulating capital, Midea Electric Appliance will get its operation profitability enhanced, its financial costs reduced, its anti-risk capacity strengthened and its fund-raising capacity upgraded.