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Gome Puts Property Venture Plan With Jailed Founder on Hold

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Oct. 3 (Bloomberg) -- Gome Electrical Appliances Holding Ltd., which has lost 41 percent of its market value since its announcement on a property venture plan with its jailed founder, said it was putting the project on hold for further research.

“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 the second- and third-tier cities,” Beijing-based Gome said in a filing to the Hong Kong stock exchange today.

China’s second-largest electronics retailer said Sept. 27 it planned a real-estate venture with billionaire founder and controlling shareholder Huang Guangyu, also known as Wong Kwong Yu. Credit Suisse Group AG downgraded Gome’s stock to “neutral” from “outperform” Sept. 29 over corporate governance concerns, saying that the venture deal raised questions about transparency and funding.

“Putting the property joint venture on hold is to the benefit of investors and shareholders, given the uncertainty in the property market,” Candy Huang, an analyst at Barclays Plc in Hong Kong, wrote in a note to clients. “The move reduces the overhang on potential corporate governance issues with regard to associated transactions with the parent company.”

Gome fell 15 percent to close at HK$1.56 on the city’s stock exchange, after earlier surging as much as 7.1 percent. The benchmark Hang Seng Index declined 4.4 percent.

The venture may lower costs and increase earnings by raising Gome’s number of stores in “self-owned” properties in China, Gome said in the Sept. 27 statement.

Gome decided to put the venture proposal on hold after considering factors including current market conditions, according to the filing.

Huang, who is serving a 14-year prison sentence on bribery and insider trading charges, owns about a third of the company with his wife Lisa Du Juan, according to data compiled by Bloomberg.

To contact the reporter on this story: Marco Lui in Hong Kong at mlui11@bloomberg.net

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

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