Gome looking into reports of boss' detention

PUBLISHED : Tuesday, 25 November, 2008, 12:00am
UPDATED : Tuesday, 25 November, 2008, 12:00am

Gome Electrical Appliances Holding said it was making inquiries into reports about the detention of chairman Wong Kwong-yu over alleged share price manipulation as trading in the company's shares was suspended yesterday.

'The company is not in a position to confirm the accuracy of the information set out in the newspaper articles,' the mainland's largest electrical appliance retailer by number of outlets said in a filing with the Hong Kong stock exchange yesterday.

Mainland media reported over the past few days that Mr Wong had been detained for making gains from manipulating share prices. Xinhua reported yesterday that Beijing city police declined to comment.

Gome said it had not received any notice or legal documents from any mainland authority regarding the allegations. It added that the company's business operations, financial position and relationship with suppliers had not been affected.

Analysts said although the chairman was not actively involved in the listed firm's daily operations, the allegations would still deal a double blow to the retailer by adding uncertainty to its business outlook and the possibility of a liquidity problem.

Investors' appetite for Gome, which had already been weakened by the mainland's waning economic strength, could deteriorate further, according to a CIMB report.

Merrill Lynch said in a report: 'Gome's suppliers and banks might ask Gome to repay the money ahead of schedule.'

The company's trade and bills payable amounted to 14.3 billion yuan (HK$16.23 billion) at the end of June, of which only 49 per cent was covered by the 7 billion yuan in pledged deposits.

Merrill Lynch said even if the matter was not very serious or if Gome was too big to fail, it could still be hurt by many uncertainties, such as over its earnings outlook and early redemption of its convertible bonds.

Gome is due to repay 4.6 billion yuan worth of convertible bonds in May 2010. To ease a potential crunch caused by early redemption, the firm has considered buying back part of the bonds with its internal cash.

However, analysts said it might not be able to continue the buy-backs, given that it could need the capital to cope with repayment demands from banks and suppliers.

Gome also reported yesterday that net profit for the nine months to September jumped 111.55 per cent to 1.59 billion yuan. Excluding fair value adjustment of the revaluation on the convertible bonds and exchange losses, net profit climbed 37.73 per cent.

The company did not provide third-quarter earnings, but based on its announced first-half figures, the quarterly profit increased 23.87 per cent to 443.21 million yuan from 357.8 million yuan a year earlier.

Thanks to strong sales during the Golden Week last month, turnover in the quarter was up 25.76 per cent at 11.5 billion yuan, with same-store sales rising 8.95 per cent after the company folded 31 unprofitable stores and opened 50 new ones.

By comparison, its closest rival, Shenzhen-listed Suning Appliance, said third-quarter net profit jumped 56.22 per cent to 610.88 million yuan.

Strong sales

Net profit at Gome for the first nine months of the year was, in yuan: yuan 1.59b