Chinese electronics chain Gome Retail seeks US$574 million from sale of new shares as disgraced founder Huang Guangyu vows to restore its former glory

Pearl Liu
·3-min read

Chinese electronics chain Gome Retail is seeking to raise HK$4.45 billion (US$573.7 million) from the sale of new shares after its founder Huang Guangyu pledged to return his company to its former glory after completing his parole last month.

Gome Retail said it plans to place 2.28 billion shares, or 10.58 per cent of its existing shares, at HK$1.97 per share to repay debt and to expand its online and offline dual-platform business, in a filing to the Hong Kong stock exchange on Tuesday.

The offer represents a 15.09 per cent discount on its last trading price.

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The top-up placement will allow Gome Retail to raise money quickly from investors as part of its bid to return to its illustrious past. The company has struggled since its chairman was jailed for financial crimes in 2010.

“We will try to resume our original market position within the next 18 months,” said Huang, 52, in his latest speech to Gome’s management, published by the company on WeChat on February 18.

The comeback will not be easy as China’s retail environment has undergone massive changes.

As online shopping replaced bricks-and-mortar stores as the main channel for home appliance purchases, Gome’s business came to be dwarfed by the country’s rising e-commerce giants.

Gome Retail accounted for only 1.4 per cent of China’s online home electronics sales in 2019, while JD.com and Suning.com grabbed a 37.3 per cent and 30.6 per cent share of the market, respectively, according to China’s Ministry of Industry and Information Technology.

The company seemed to have recognised the challenges and said that the newly raised money will be used “for the future expansion of its integrated online and offline dual-platform business, [to] accelerate the future development of digital local retail,” according to the company’s filing.

Huang said earlier that Gome’s basic strategy is to offer customers “low prices for carefully selected products”, along with timely delivery and a happy shopping experience.

One of China’s most influential entrepreneurs before the country’s rich list came to be dominated by tech founders and property developers, Huang was arrested in 2008 on suspicion of “economic crimes”.

He was convicted in 2010 for insider trading and corporate bribery, and the transfer of 800 million yuan (US$113 million) to underground private banks in 2007.

He was released from jail on parole in June last year and officially finished his parole in February.

Gome Retail lost some of its shine during Huang’s time in prison.

It has reported losses for three consecutive years since 2017. Last week, the company warned of a loss of up to 7.2 billion yuan in 2020, much wider than the loss of 2.6 billion yuan in 2019.

It also expected to see a drop in revenue as much as 29 per cent last year, bringing it to some 42.2 billion yuan.

In comparison, its rival appliance retailer Suning.com’s earnings last year stood at 258.4 billion yuan.

Today, Huang and his wife remain Gome Retail’s largest shareholders with a 50.26 per cent stake.

Its shares plunged 18.97 per cent and closed at HK$1.88 in Hong Kong Tuesday after the share placement announcement.

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