Appliance king defied the odds until stakes got too high
Rags-to-riches Gome billionaire profited from ‘grey areas’
Charlotte So 23 August 2009
The bigger the tree, the more vulnerable it is to the wind, according to a Chinese proverb that bodes badly for embattled rags-to-riches billionaire Wong Kwong-yu.
Mr. Wong (known as Huang Guangyu on the mainland) is very big. The founder of appliances chain Gome was ranked the richest man in China by the Hurun Report last year, and the second-richest by Forbes.
He was taken into detention on the mainland last November on suspicion of stock-market manipulation, tax evasion, money laundering and bribery.
Curiosity about Mr. Wong’s whereabouts and his activities grew this month after the Hong Kong Securities and Futures Commission accused him of fraud.
It said Mr. Wong and his wife, Du Juan, orchestrated a share buy-back in Hong Kong-listed Gome Electrical Appliances Holding in January to repay a HK$2.4 billion personal loan.
“The robust economic growth has allowed many entrepreneurs like Mr. Wong to vigorously expand their business over the past 10 years,” said Olive Xia, a Shanghai-based retail analyst with Core Pacific-Yamaichi.
But the mainland regulatory framework had not grown at the same pace as the economy, she said, leading to Mr. Wong and other wealthy businessmen trying to reap benefits in the grey areas.
Mr. Wong was born in 1969, the younger of two brothers in a poor family from Shatou , Guangdong. He spent part of his childhood scavenging in rubbish tips, according to mainland reports.
He accumulated his initial capital stake with his brother by spending US$500 on watches and selling them in Inner Mongolia .
Using a 4,000 yuan stake and a 30,000 yuan loan, Mr. Wong, then 18, went to Beijing to establish his first Gome store with his brother, selling apparel and then appliances.
Seventeen years later, after steadily building the Gome network, his wealth had ballooned to 43 billion yuan. In 2004 he found a way of leveraging the value of Gome through a back-door listing in Hong Kong. A back-door listing, sometimes referred to as a reverse takeover, is when a privately held company that may not qualify for a public offering buys an existing publicly traded company and injects its assets into it.
He did this by selling a 65 per cent stake in Gome to China Pengrun, a Hong Kong-listed firm that he controlled, for HK$8.3 billion.
Then he changed Pengrun’s name to Gome, instantly transforming it into a HK$12.8 billion company.
Gome became a cash machine for Mr. Wong. He accumulated 13.5 billion yuan through selling part of his stake and selling his privately owned assets to the listed company, according to Hurun, publisher of an annual list of the richest people in China.
He then invested much of his money in the mainland’s stock and property markets.
At his peak, Mr. Wong owned four property companies on the mainland. Some mainland reports suggested he owned more land than property giant Country Garden.
Mr. Wong, who has topped the Hurun rich list for three of the past five years, reportedly had assets of US$6.3 billion last year.
He sought to recreate the miracle of his Hong Kong listing on the Shanghai market. In July 2006 he became the largest shareholder of Beijing Centergate Technologies, the developer of Beijing’s technology district, Zhongguancun, China’s Silicon Valley. He planned to inject part of his property portfolio into Centergate by issuing 1.8 billion new shares of the company to Beijing Pengtai Investment, an investment arm he controlled, at 14.67 yuan each, three times Centergate’s trading price.
The proceeds were to be used to buy Pengrun Real Estate, which he also controlled.
The highly inflated offer price, in addition to the jaw-dropping valuation this would have created for Pengrun, made the Centergate director reject the deal. The transaction valued the company at 18 billion yuan, or 40 times its 2008 earnings and nine times the company’s book value.
Centergate’s share price peaked at 17.8 yuan last year, from 2.5 yuan in 2006, partly because Mr. Wong’s proposal was considered a white-knight investment that could save the company. Centergate had borrowed more than 3 billion yuan to develop a CDMA mobile phone network in Guangdong, later abandoned.
The China Securities Regulatory Commission (CSRC) accused Mr. Wong of manipulating the share price of Centergate to profit from trading in the stock, which he had bought at an average price of 0.78 yuan. The windfall was to be used to fund a restructuring of Centergate.
The volatility in the share price of Centergate caught the eye of mainland regulators. The CSRC accused Pengrun Investment, the real estate arm of his empire, of illegal activity in the restructuring of Centergate and Sanlian Commercial on November 28, just days after his detention by Beijing police.
Mr. Wong resigned as Gome chairman and his wife quit as executive director on December 24.
Gome’s Hong Kong retail operation, still 100 per cent held by Mr. Wong, has been shrinking. Nine of its shops in the city have closed for “relocation” or are “under renovation”, according to Next Magazine.
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Appliance king defied the odds until stakes got too high
Rags-to-riches Gome billionaire profited from ‘grey areas’
Charlotte So
23 August 2009
The bigger the tree, the more vulnerable it is to the wind, according to a Chinese proverb that bodes badly for embattled rags-to-riches billionaire Wong Kwong-yu.
Mr. Wong (known as Huang Guangyu on the mainland) is very big. The founder of appliances chain Gome was ranked the richest man in China by the Hurun Report last year, and the second-richest by Forbes.
He was taken into detention on the mainland last November on suspicion of stock-market manipulation, tax evasion, money laundering and bribery.
Curiosity about Mr. Wong’s whereabouts and his activities grew this month after the Hong Kong Securities and Futures Commission accused him of fraud.
It said Mr. Wong and his wife, Du Juan, orchestrated a share buy-back in Hong Kong-listed Gome Electrical Appliances Holding in January to repay a HK$2.4 billion personal loan.
“The robust economic growth has allowed many entrepreneurs like Mr. Wong to vigorously expand their business over the past 10 years,” said Olive Xia, a Shanghai-based retail analyst with Core Pacific-Yamaichi.
But the mainland regulatory framework had not grown at the same pace as the economy, she said, leading to Mr. Wong and other wealthy businessmen trying to reap benefits in the grey areas.
Mr. Wong was born in 1969, the younger of two brothers in a poor family from Shatou , Guangdong. He spent part of his childhood scavenging in rubbish tips, according to mainland reports.
He accumulated his initial capital stake with his brother by spending US$500 on watches and selling them in Inner Mongolia .
Using a 4,000 yuan stake and a 30,000 yuan loan, Mr. Wong, then 18, went to Beijing to establish his first Gome store with his brother, selling apparel and then appliances.
Seventeen years later, after steadily building the Gome network, his wealth had ballooned to 43 billion yuan. In 2004 he found a way of leveraging the value of Gome through a back-door listing in Hong Kong. A back-door listing, sometimes referred to as a reverse takeover, is when a privately held company that may not qualify for a public offering buys an existing publicly traded company and injects its assets into it.
He did this by selling a 65 per cent stake in Gome to China Pengrun, a Hong Kong-listed firm that he controlled, for HK$8.3 billion.
Then he changed Pengrun’s name to Gome, instantly transforming it into a HK$12.8 billion company.
Gome became a cash machine for Mr. Wong. He accumulated 13.5 billion yuan through selling part of his stake and selling his privately owned assets to the listed company, according to Hurun, publisher of an annual list of the richest people in China.
He then invested much of his money in the mainland’s stock and property markets.
At his peak, Mr. Wong owned four property companies on the mainland. Some mainland reports suggested he owned more land than property giant Country Garden.
Mr. Wong, who has topped the Hurun rich list for three of the past five years, reportedly had assets of US$6.3 billion last year.
He sought to recreate the miracle of his Hong Kong listing on the Shanghai market. In July 2006 he became the largest shareholder of Beijing Centergate Technologies, the developer of Beijing’s technology district, Zhongguancun, China’s Silicon Valley. He planned to inject part of his property portfolio into Centergate by issuing 1.8 billion new shares of the company to Beijing Pengtai Investment, an investment arm he controlled, at 14.67 yuan each, three times Centergate’s trading price.
The proceeds were to be used to buy Pengrun Real Estate, which he also controlled.
The highly inflated offer price, in addition to the jaw-dropping valuation this would have created for Pengrun, made the Centergate director reject the deal. The transaction valued the company at 18 billion yuan, or 40 times its 2008 earnings and nine times the company’s book value.
Centergate’s share price peaked at 17.8 yuan last year, from 2.5 yuan in 2006, partly because Mr. Wong’s proposal was considered a white-knight investment that could save the company. Centergate had borrowed more than 3 billion yuan to develop a CDMA mobile phone network in Guangdong, later abandoned.
The China Securities Regulatory Commission (CSRC) accused Mr. Wong of manipulating the share price of Centergate to profit from trading in the stock, which he had bought at an average price of 0.78 yuan. The windfall was to be used to fund a restructuring of Centergate.
The volatility in the share price of Centergate caught the eye of mainland regulators. The CSRC accused Pengrun Investment, the real estate arm of his empire, of illegal activity in the restructuring of Centergate and Sanlian Commercial on November 28, just days after his detention by Beijing police.
Mr. Wong resigned as Gome chairman and his wife quit as executive director on December 24.
Gome’s Hong Kong retail operation, still 100 per cent held by Mr. Wong, has been shrinking. Nine of its shops in the city have closed for “relocation” or are “under renovation”, according to Next Magazine.
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