Click for more photos

The TCL Corporation has stated that a "substantial" fourth-quarter loss in 2006 will put the company on the verge of "special treatment" by the Shenzhen Stock Exchange for losing money for two consecutive years.

The TCL, mainland China's biggest publicly traded consumer electronics producer, is being dragged down by subsidiary TCL Multimedia Technology Holdings Ltd, the company said in a statement to the Shenzhen Stock Exchange.

The subsidiary's costs from restructuring its European business turned out to be higher than expected, the statement said. Sluggish sales of air-conditioners added to the parent company's financial problems.

"The fourth quarter performance will be worse than expected as overall costs and expenses, including impairment provisions for restructuring and winding down TCL Multimedia's European operations, far exceeded previous estimates, and the poor air-conditioner business dragged down the company's performance," the statement said.

TCL Multimedia has been restructuring its European business since November by halting the sale of TV products via TTE Corp, a joint venture it formed with France's Thomson SA in November 2003 to produce cathode-ray tube TV sets.

The move came after continuous losses in Europe that in turn produced losses for parent company, TCL Corp. TCL Corp is the largest shareholder of TCL Multimedia, with a 38.74% stake.

TCL Multinational reported a HK$1.52 billion (194.5 million USD) loss in the first nine months of last year, and the parent company lost RMB 706 million (91.28 million USD) during the period, following a loss of RMB 320.2 million in 2005.

"The restructuring strategy costs money at the moment, but we expect to see rewards to the bottom line in the coming years to help TCL turn around," said Zhang Qi, an analyst at Haitong Securities Co.

TCL faces "special treatment" designation after its annual report is released, a label that cautions investors against potential risks for companies reporting losses for two straight years. Another four years of losses would result in the company's delisting from the Shenzhen exchange.

Annual figures are expected to be released later this month.

Shares of the Guangdong maker slumped 4.09 percent to RMB 4.69 in Shenzhen yesterday.