Gome shares plunge on joint-venture woes

PUBLISHED : Tuesday, 04 October, 2011, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am


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Suspending plans to form a property joint venture with its jailed former chairman's other firms could not stem the selling pressure on Gome Electrical Appliances as its shares tumbled nearly 15 per cent yesterday.

The retailer's shares rose 7 per cent before falling 14.8 per cent to HK$1.56 at the close. The downswing came after the stock lost 29 per cent last week following news that the company was planning to form a joint venture with the real estate unit of former chairman and founder Wong Kwong-yu, also known as Huang Guangyu.

There were fears that the plan would worsen the dispute between the firm's largest and second-largest shareholders, Wong and Boston-based Bain Capital, who have been battling for control in the boardroom.

The resultant sell-off slashed Gome's market capitalisation by US$1.3 billion last week, wiping out virtually all intended marginal benefits from the venture, according to a UBS report.

Chastened by the market reaction, Gome said yesterday that it had decided to shelve the plan until a more opportune time.

'The company will re-evaluate various factors relating to the proposal and continue to study how to obtain attractive retail, storage and logistics properties in second- and third-tier cities,' it said in a filing to Hong Kong's stock exchange.

The management would also consider factors such as the structure of the planned joint-venture entity, investment amount and details of financial models regarding capital expenditure, a Macquarie report said. It will also incorporate key investors' opinions in the new plan.

Last week, Gome proposed to expand the group's property portfolio through a joint venture with Beijing Eagle and Beijing Gome Properties, both controlled by Wong.

The registered capital expenditure for the proposal was 200 million yuan (HK$242 million), with 45 per cent to be held by Gome Electrical, 30 per cent by Beijing Eagle and 25 per cent by Beijing Gome.

Gome Electrical said it was crucial for the group to secure appropriate retail locations and rein in rental expenditure as demand increased for quality commercial spaces in China's growing consumer market.

More self-owned properties would lower operating costs and increase the group's margins, it said.