Ex-Gome boss in high stakes game

PUBLISHED : Friday, 07 August, 2009, 12:00am
UPDATED : Friday, 07 August, 2009, 12:00am

The High Court's order to freeze the Hong Kong assets of embattled retail tycoon Wong Kwong-yu comes only weeks after a surprising deal that helped enlarge his stake in the retail empire he founded.

The vehicle used to raise funds for the deal was Shinning Crown Holdings, which holds Wong's shares of Gome Electrical Appliances Holding, and is one of the four defendants named by the court. The other three are Wong, his wife Du Juan - who is also reportedly under house arrest - and another company controlled by Wong.

For a man reportedly being detained for alleged economic crimes, Wong still appears to be an active player in the market.

The former chairman and largest shareholder of Gome bought 816.32 million shares at 67.2 HK cents in the mainland electric appliance retailer in an open offer that ended on July 27, boosting his stake to 34 per cent from 33.7 per cent.

Earlier on July 20, Wong had sold 235 million Gome shares at HK$1.704 each through Shinning Crown, raising HK$400 million to take advantage of the share offer.

The sell-high-buy-low transactions puzzled the market as nobody expected Wong, who is under investigation for economic crimes by the mainland authorities, would be able to trade shares.

The court on Wednesday ordered the freezing of HK$1.66 billion worth of assets of Wong and Ms Du at the request of the Securities and Futures Commission.

Trading of Gome shares has been active in the past weeks.

The stock, which has gained 19.53 per cent since the result of the successful open offer was announced last Friday, closed up 3.63 per cent at HK$2.57 yesterday. By comparison, the benchmark Hang Seng Index has advanced 3.29 per cent since last Friday.

Cash-strapped Gome said in June that it aimed to raise up to HK$3.24 billion by issuing convertible bonds to private United States equity fund Bain Capital and offer 18 new shares for every 100 held by existing investors at 67.2 HK cents each.

An open offer, also known as an entitlement issue, is an offer made by a company to its shareholders inviting them to buy new shares in the company at a set price, which is normally lower than the market price.

The purpose, as with a rights issue, is to raise new capital for the company. Unlike a rights issue, an open offer cannot be traded or sold by the shareholder.

Bain was the underwriter of the offer, meaning it could buy the shares that are not taken up. But the offer of 2.297 billion shares was 98.48 per cent subscribed, raising HK$1.54 billion and leaving Bain with only a 0.2 per cent stake.

Market observers said Wong's increased stake in Gome raised the possibility of conflict between him and Bain over influence in the company and operational strategy.

It has been speculated that Wong not joining the open offer was one reason Bain agreed to the capital injection. Inquiries to Gome yesterday were not returned.

Enlarged empire

The former chairman raised his holding in an open offer that ended on July 27 to: 34%