Gome Plunges After Announcing Venture With Jailed Founder

Gome Electrical Appliances Holding Ltd., China’s second-largest electronics retailer, fell the most in more than a year in Hong Kong trading after saying it plans to set up a property venture with its jailed founder.

Gome plunged 11 percent, the biggest decline since Aug. 6, 2010, to close at HK$2.34 on the city’s stock exchange. The benchmark Hang Seng Index (HSI) declined 0.7 percent.

The Beijing-based home appliances retailer will form a venture with units associated with billionaire founder and controlling shareholder Wong Kwong Yu, also known as Huang Guangyu, to “engage in property development and investment” in China, according to a statement to the Hong Kong stock exchange yesterday. The registered capital of the property venture will be 200 million yuan ($31 million), it said.

“Investors prefer Gome’s management to focus on its existing retail business,” said Ben Kwong, chief operating officer at KGI Asia Ltd. in Hong Kong. “A deviation from its core business to the property sector brings uncertainties to the company’s prospects.”

Huang is serving a 14-year jail term on bribery and insider trading charges. He won a boardroom battle with Gome’s previous chairman Chen Xiao from prison earlier this year to reassert his influence. Gome is China’s second-biggest electronics retailer.

A property venture will help Gome “increase its portfolio of stores that operate from self-owned properties, thereby lower the operating costs and increase the margin of the group,” it said in the statement yesterday.

Gome plans 260 new shops this year and aims for 2,400 outlets by 2014, President Wang Jun Zhou said Aug. 29. The number of stores rose to 938 at the end of June from 826 at the end of 2010, according to an exchange filing last month.

Huang and his wife Lisa Du Juan own almost a third of Gome, according to data compiled by Bloomberg.

To contact the reporter responsible for this story: Marco Lui at mlui11@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.