Business as usual for Wong, thanks to 'creative support'
Why was Wong Kwong-yu, a guy in custody, able to summon up HK$459 million to pay for new shares in Gome Electrical Appliances Holding as he sought to maintain his control of the electronic appliance retailer?
Outside the mainland, people in jail generally lose their physical freedom but are free to talk to lawyers and manage their assets.
But on the mainland, things are very different. Remember, this is a country where human rights lawyers see their firms collapsing because they are not allowed to sign a cheque and pay their bills.
This is a place where tycoons disappear overnight, followed closely by the evaporation of their once-powerful business empires.
And yet Wong, who has found himself at the centre of a major anti-graft crackdown, has not only managed to put up nearly half a billion dollars for a deal but also pulled off a stellar 'sell high, buy low' operation.
Back in late June, when Gome announced a HK$1.6 billion open offer, few expected Wong to take up his allotment, given his dire straits.
Some even called this step a case of 'de-Wong Kwong-yu-ing' the company as it moves from a family business into one run by career managers.
The plan was for international private equity fund and underwriter Bain Capital to take up Wong's share and secure at least 9 per cent of the company, on top of its 9.8 per cent holding in the form of convertible bonds.
Gome's share price doubled on the good news. Then, to the market's surprise, Wong sold 235 million Gome shares at HK$1.704 each in mid-July and then subscribed for 684 million shares at 67.2 HK cents each a week later. His holding rose from 33.7 per cent to 34 per cent.
While the market wonders how on earth he managed this, people in the loop, however, see nothing odd. 'Wong has access to a 42-inch plasma television, the phone and lawyers. Why can't he do business from his cell?' said one.
Apparently, despite all the noise over his arrest, Wong is only 'a fly' in the eyes of the anti-graft investigators. The real targets are some of the country's law-and-order heavyweights. 'He named names and life got better,' said the insider.
(Wong's arrest has brought down officials formerly in charge of law and order in Guangdong: Chen Shaoji, formerly chairman of the Guangdong Chinese People's Political Consultative Conference and former provincial police chief, and his former deputy, Zheng Shaodong, who rose to become assistant minister of public security. Fallen Shenzhen mayor Xu Zongheng is also implicated in Wong's case.)
I have no way of confirming if Wong is monitoring the stock market on the huge plasma screen in his cell. Neither do I know if he's guilty in the eyes of Beijing. But I do see a valid reason for Beijing to allow Wong some 'business access'.
Gome is 'too big' and 'too real' to fall.
While those private enterprises that have earlier gone down with their boss were either a fraud or an artificial bundling up of some land and roads, Gome has real and big businesses.
It is the country's largest electronic appliance retailer, with 859 stores in 205 cities. It employs 48,697 staff. It owes its suppliers HK$12.9 billion and the banks HK$3.7 billion. These numbers have not been counted in the business at the parent level, which operates a further 250 stores.
The price of its collapse would be costly. Imagine the financial blow to its suppliers, including various state-owned enterprises, such as Haier Group, should Gome fall.
There is also an unspeakable concern. Should the Chinese court later decide to confiscate Wong's assets, his stake in Gome will be worth much more if it's a continuing business. (On convicting Shanghai tycoons Zhang Rongkun and Liu Gashen of bribery, the authorities took over their highway stakes and resold them for billions of dollars.)
It's in everybody's interest to keep Gome alive.
Gome, being a family enterprise, is tightly controlled and deeply influenced by Wong, its founder. It's impossible for the firm to continue operations without the facilitation of Wong.
So, instead of being completely cut off from the world, Wong has been able to appoint his two allies and company veterans, Wang Junzhou and Wei Qiuli, as 'his representatives to execute documents' - a treatment that is rarely given to other private entrepreneurs in jail.
At the same time, one of Gome's non-executive directors continues to talk about the injection of Wong's privately owned stores into the listed firm, despite Wong's predicament. (If that happens, it will mean more money for Wong and more stores for Gome.)
No wonder that after announcing Bain's HK$1.6 billion cash injection, Gome issued an open letter that expressed 'gratitude to the government authorities, in particular, the Beijing Public Security Bureau, for their creative support and facilitation [throughout the crisis]'.
The question is whether the 'creative support' will be extended to bringing Wong to justice in Hong Kong. The Hong Kong authorities have not been able so far to bring anyone in mainland custody to face local courts.
In the case of Wong, the signs have not been encouraging.
Within days of his stellar 'sell high, buy low' deal, local regulators froze Wong's assets in Hong Kong on allegations that he used HK$1.6 billion of company money to repay his own debt.
It would have been in the shareholders' interest for Gome to have started an independent investigation and approached Wong on the alleged misappropriation, but the company's only response has been an announcement that it would not be adversely affected by the regulator's actions.
Nobody knows who was talking here - the company or the mainland authorities.
Another test will come when our regulators attempt to serve a court notice on Wong in relation to the frozen assets. The result is anybody's guess.
But one thing is for sure - to have a suspect who is beyond the reach of Hong Kong authorities actively dealing with a company's assets and shares is detrimental to the credibility of our regulatory regime.