Gome Electrical Appliances Holding Ltd. fell the most in almost three years in Hong Kong as Credit Suisse Group AG downgraded the Chinese appliance retailer’s stock over corporate governance concerns.
Gome declined 22 percent, the most since Oct. 6, 2008, to close at HK$1.83 on the city’s stock exchange. The benchmark Hang Seng Index fell 2.3 percent.
Credit Suisse downgraded Gome’s stock to “neutral” from “outperform” yesterday after the company said it will form a venture with billionaire founder Huang Guangyu, who is serving a 14-year prison sentence on bribery and insider trading charges. The deal raises questions about transparency and funding, Kevin Yin, an analyst at Credit Suisse, wrote in a note to clients yesterday. “Who controls Gome?” he wrote.
Gome spokesman He Yangqing was not immediately available for comment. A call and a message to the mobile phone of Zou Xiaochun, an executive director of the company, went unanswered.
The venture aims to increase the number of stores on “self-owned” properties in China in a bid to lower its operating costs and increase its profit margin. Yin lowered his share-price estimate for Gome, China’s second-largest electronics retailer, to HK$2.50 from the previous HK$4.30.
“We believe that purchasing floors within a finished construction project is much more sensible than developing a whole commercial building,” Yin wrote.
Huang, Gome’s biggest shareholder, won a boardroom battle with Gome’s previous chairman Chen Xiao from prison earlier this year to reassert his influence.
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, also known as Wong Kwong Yu, owns almost a third of Gome with his wife Lisa Du Juan, according to data compiled by Bloomberg.