HONG KONG: Though the detained former Gome Electrical Appliances Holdings chairman, Huang Guangyu, remains the biggest shareholder of the company, his detention is unlikely to darken Gome's business prospects, analysts said.

Huang, the billionaire founder and ex-chairman of Gome, has been in the midst of a colossal legal scandal, during which he has had to face investigation, arrest, asset seizure and prosecution on the mainland and in Hong Kong since November last year.

The tycoon, also known as Wong Kwong-yu in Hong Kong, has been detained by the Beijing Public Security Bureau for nine months on suspicion of committing "economic crimes".

After his detention on the mainland, the Hong Kong High Court also surprised the market by issuing an order to freeze HK$1.66 billion of Huang's assets in the city, following an application by the Securities and Futures Commission (SFC).

The security watchdog said Huang and his wife Du Juan are alleged to have organized a share repurchase by Gome in January and February 2008, using Gome's company funds to buy shares held by Huang. The proceeds of that share sale were later used to repay Huang's HK$2.4 billion personal loan to a financial institution.

Though the court will be hearing the commission's case on September 8, market has been anticipating that Huang's case will very probably remain unsettled.

Research analyst manager at Wing Fung Financial Group Limited Fiona Wong said it may not be possible to bring both Huang and Du to face justice in Hong Kong.

"Since Huang is still under detention on the mainland, it is very unlikely for him to appear in court here come September," Wong said, "The legal case is likely to remain open-filed."

The Hong Kong authorities, in fact, have yet to bring anyone in mainland custody to Hong Kong to face local prosecution.

Gome's spokesperson on the mainland told the media that Huang and his wife may send their personal representatives to attend the court hearing in September.

After Huang stepped down from Gome in late December, the company's new management has been trying to minimize Huang's impact on Gome.

Chen Xiao, who replaced Huang as chairman and president in January, last week told reporters in Hong Kong that Gome will not send representatives to the court hearing.

Chen said that the case, involving only Huang and his wife, has no direct relationship with the company, adding that he hasn't had any contact with the company's founder since October.

Gome, meanwhile, also filed a statement to the Hong Kong stock exchange, saying that "the company was not approached by any regulators or judicial authorities relating to such a court order."

Despite the company's effort to draw a clear line between Huang and Gome, the company's founder is not likely to hand over his power.

Huang remains the biggest shareholder of Gome, after raising his stake in the company to 34 percent through a share repurchase in Gome's public offer in July.

The tricky repurchase happened when Gome announced its intention to raise HK$3.24 billion by issuing convertible bonds to a US private equity firm Bain Capital LLC and also to offer HK$1.6 billion new shares to existing shareholders.

While the market expected the injection of new capital would dilute Huang's stake in Gome, the ex-chairman, instead increased his holdings by selling 235 million of Gome shares at HK$1.704 apiece and by purchasing 684 million shares at 67.2 HK cents each one week later.

The market has been speculating that Huang, who founded Gome in 1987 with a 4,000 yuan stake and 30,000 yuan loan, may attempt to maintain his participation in the company.

Although Huang's case has entered into a complicated legal proceeding, analysts expect it may not take a toll on Gome's business.

Patrick Shum, president of BMI Funds Management, said the SFC investigation will not involve the company's operations, since Huang has already been dissociated from the company for almost eight months.

"Gome's business will remain quite attractive to many foreign investors, as the company's significant sales network on the mainland will help promote foreign brands in the country," Shum said.

Gome, the second-biggest electronics and home appliances retailer on the mainland by market value, posted a 50 percent slump in its first-half net earnings, as mainland consumers cut spending on expensive items.

Sales for the six months ended June 30 also dropped 17.7 percent to 20.5 billion yuan, while same-store sales fell 10 percent.

Gome shares ended yesterday trading at HK$2.1, falling 2.33 percent or HK$0.05, moving against the 1.04 percent drop in the benchmark Hang Seng Index.

(HK Edition 08/28/2009 page4)