Market abuzz with rumours of Gome ex-boss joining open offer

PUBLISHED : Monday, 27 July, 2009, 12:00am
UPDATED : Monday, 27 July, 2009, 12:00am

Whether Wong Kwong-yu, the embattled ex-chairman and largest shareholder of Gome Electrical Appliances Holdings will join the firm's open offer is as much a mystery as his whereabouts.

Although it is widely believed Wong, under investigation for 'economic crimes' by mainland authorities, would not be able to join the offer, his trading in the stock market last week through one of his companies has triggered fresh speculation.

Wong offloaded 235 million Gome shares at HK$1.704 each last week, cashing out HK$400 million, according to the Hong Kong stock exchange.

The move, which reduced his holding in the retailer, has also been interpreted as him getting cash ready to join the open offer.

The deadline for Gome's shareholders to submit their applications and payment for the company's offer of up to HK$1.67 billion is today. The results will be announced on Friday.

Cash-strapped Gome last month said it aimed to raise HK$3.24 billion by issuing convertible bonds to American private equity fund Bain Capital and offering 18 new shares for every 100 held by existing investors at 67.2 HK cents each.

Gome shares rose 21.43 per cent last week, closing at HK$2.21 on Friday.

Unlike a rights issue, investors are unable to sell the stocks that they purchase under the open offer to other parties.

As Bain is also the underwriter of the offer, it will buy the shares that are not taken up.

Analysts and fund managers had expected Wong, who holds a 35.5 per cent stake, or 4.54 billion Gome shares, to forgo the scheme, which will dilute his ownership in the firm he founded and increase Bain's holding.

However, if Wong joins the open offer, he will need to pay HK$544 million for 810 million new shares. Speculation that his share sale was a prelude to joining the offer sparked the rally in Gome's stock last week.

Market observers said it would be bad news for the company if Wong bought his entitlement, which would increase the possibility of conflict between him and new investor Bain in the terms of influence in the company and operational strategy.

'I believe the assumption that Wong would not accept the open offer is one reason behind Bain's capital injection, but now it seems this is not for sure,' one analyst said.

A Bain staff member and Gome chairman Chen Xiao said they did not know if Wong would buy new shares.

A fund manager said he believed Gome would follow the example of another scandal-hit retailer, Wumart Stores, which distanced itself from a disgraced founder and later recovered.

Zhang Wenzhong, the founder of Hong Kong-listed Wumart Stores, was sentenced to 18 years in jail after being convicted of misappropriation, bribery and fraud last year.

Zhang had been detained for about two years by mainland authorities after resigning as the company's chairman as he was implicated in the investigation into the activities of disgraced former Beijing deputy mayor Liu Zhihua.