TCL Comm to buy out Alcatel stake in JV

Chinese mobile phone maker TCL Communication said on Tuesday it would buy out Alcatel's stake in their joint venture, moving to fix a business that has weighed heavily on its bottom line.

TCL Communication Technology Holdings Ltd. would use HK$63.3 million ($8.12 million) in new shares to do so, it said in a newspaper announcement.

TCL Communication, a unit of China-listed TCL Corp., said the buy-out would enlarge its current share base by 5 percent, with new shares used to pay for Alcatel's 45 percent stake in the venture, TCL & Alcatel Mobile Phones Ltd.

TCL Communication shares, which were suspended last week, dropped 5.56 percent to HK$0.425 -- near an all-time low -- when trading resumed on Tuesday.

Despite a deal that looks sound on paper, investors may have been dumping the stock over concerns that Alcatel's departure reflects deeper problems at the joint venture, said one analyst, speaking on condition of anonymity.

"People are worried about why Alcatel wants to quit," the analyst said. "Maybe they think Alcatel know something the public doesn't know."

The joint venture, built around Alcatel's poorly performing cell phone-making operations, has struggled since its formation last year, helping to pull TCL Communication into the red for the past two quarters.

The joint venture lost HK$357 million in the first quarter of this year while TCL Communication, China's second largest domestic cell phone maker, posted a net loss of HK$386 million.

In reporting its first-quarter results, the company said it had begun transferring a small amount of the joint venture's manufacturing to its China-based TCL Mobile unit, and that it expected a larger quantity would be transferred by year-end.

On Tuesday, TCL Communication also said it would transfer most of the joint venture's research and development personnel that it inherited from Alcatel back to Alcatel. It said Alcatel would pay TCL Communication 20 million euros.

TCL Communication Chairman Li Dongsheng called the buy-out the latest move to turn around the venture.

"This is a critical step forward and will help lay foundations for TCL Communication to prosper and grow in the future," he said in a statement.

Separately, TCL Communication said it would issue 20 million euros worth of convertible notes to its parent that, if exercised, would increase TCL Corp.'s stake in the Hong Kong-listed company to 62 percent from the current 57.4 percent.

Shares of both TCL Communication and its parent were suspended last week pending an announcement.

TCL Communication shares are down by more than 50 percent since their listing last year, as the company has struggled both with the Alcatel joint venture as well as fierce competition in its home market.