Gome breathes easier as Huang jailed By Olivia Chung
HONG KONG - The fall from grace of Huang Guangyu, the founder of Chinese
retailing giant Gome and once ranked China's richest man, is now surely
complete, after he was sentenced in Beijing on Tuesday to 14 years in prison on
charges of bribery, insider trading and illegal business dealings. His wife was
also jailed on insider trading charges.
Huang, 41, known in Cantonese as Wong Kwong-yu, was also fined 600 million yuan
(US$88 million) with another 200 million yuan worth of property being
confiscated, a statement from Beijing No 2 Intermediate People's Court said.
Two of Huang's companies, Gome and Beijing Pengrun Real Estate Development,
were fined 5 million yuan and 1.2 million yuan respectively for giving bribes.
The court said it found Huang's crimes to be extremely serious, but it had
shown leniency because he had admitted guilt and
assisted with the criminal investigation. The case included the involvement of
public security, Commerce Ministry and banking officials.
Yang Zhaodong, Huang's lawyer, later said the sentence was a bit harsh and the
grounds given by the court were unreasonable and raised unsolved questions over
the case.
Between September and December 2007, Huang channeled 800 million yuan to Hong
Kong, where the money was exchanged by individuals rather than legitimate
exchangers into HK$822 million (US$105 million) according to a previously
released indictment. One of the individuals, Zheng Xiaowei, is a niece of Lian
Chao, who is an investor in a gaming ship, Neptune, which operates in
waters near Hong Kong and Macau.
The indictment also said that Huang in 2007 ordered others to buy substantial
shares of a company in which he was a major shareholder, Shenzhen-listed
Beijing Centergate Technologies (Holding) Co, prior to public disclosure of
plans that it would be reconstructed, leading to gains of millions of yuan
after the shake-up plans were announced.
Huang was also found guilty of corporate bribery for asking a subordinate to
bribe police and taxation officials. These allegedly included Xiang Huaizhu,
former deputy director of the economic crime investigation unit of the Ministry
of Public Security, who reportedly accepted 1.06 million yuan to fix cases
connected to Huang's companies. Xiang's fate has yet to be decided, so far as
is publicly known. The indictment said Guo Jingyi, former inspector of the
Ministry of Commerce, has been prosecuted for accepting Huang's money.
Xiang was prosecuted in a closed trial in Beijing in March on charges of taking
bribes and protecting Huang. The court did not say how much money was involved.
Guo stood trial in Beijing in the same month on charges of accepting from
companies bribes of 8.44 million yuan and a luxury villa at half price. Guo,
44, is the most senior official of the ministry to go on trial for bribery.
Du Juan, Huang Guangyu's wife and Gome's former executive director, was
sentenced to three-and-a-half years and fined 200 million yuan on insider
trading charges.
Huang, ranked China's richest man in 2004 with US$1.3 billion, made his fortune
by building Gome into the country's largest consumer electronics retailer in
terms of number of stores.
By 2008, his wealth had surged to US$6.3 billion, after shares in Gome were
sold to the public and listed on the Hong Kong stock market. By the next year,
after his arrest in November and a slide in share values as the global
financial crisis took hold, he was slipping down the list of rich people to
17th spot, with $3.4 billion, based on his remaining 34% share of Gome and his
privately held Beijing property assets.
Gome shares, already sliding in value from above HK$4.50 in June 2008, were
suspended in November 2008 at HK$1.50 after police revealed that Huang was
under investigation for stock manipulation. The stock bounced back last June
when trading was resumed and it was announced that US private equity firm Bain
Capital was to invest US$418 million into the company, now under the
chairmanship of Chen Xiao.
The share price surged to as high as HK$3 earlier this year before sliding back
amid a general market retreat and as Huang's trial proceeded. The stock closed
up less than 1% on Tuesday at HK$2.32 after the sentencing was announced.
With Huang removed from direct involvement in the company during the
investigation, Gome sought to tidy up business under new chairman Chen Xiao.
Full-year net profit rose 34.4% to 1.41 billion yuan last year, even as revenue
slumped 7% after the new management closed 189 underperforming stores, leaving
it with only 726 still operating. The closures dragged Gome down from its
ranking as the country's largest home appliance retailer, clearing the way for
its main rival, Shenzhen-listed Suning Appliance, to take top spot.
Suning opened 120 new outlets in 2009 for a total of 950, and with sales rising
17% as a government economic stimulus encouraged spending, net profit rose more
than a third to 2.89 billion yuan, double Gome's figure.
Gome's management will now be hoping that Huang's incarceration will remove his
remaining influence on the company. Last Tuesday, two shareholders affiliated
to Huang succeeded in securing a vote against the appointment to the board of
three directors who are executives of Bain Capital, the US company that last
year injected new funds into the retailer.
The following day, Gome said it had reappointed the three. This time, perhaps,
they will stay on the board.
Huang, born in a poor village in Shantou in Guangdong province, next to Hong
Kong, started his rise to fame and fortune in 1984, when he quit secondary
school and left his hometown with his elder brother Huang Junqin for Inner
Mongolia, where he learned the basic skills of trading.
In 1985, the two went to Beijing and opened a small clothes shop called Gome
with 4,000 yuan of savings. In 1988, they took over a small retail store in
Beijing that belonged to a state factory. Finding that clothes did not sell
well, they switched to electrical appliances. The brothers split up in 1993.
Huang Guangyu maintained his focus on appliances while his brother turned his
attention to real estate.
With the thriving economy putting ready cash for the first time into the
pockets of millions of consumers, demand for electronics goods surged in the
1990s, and Huang earned his "first bucket of gold".
Over-production by factories and aggressive price-cutting campaigns drove
Gome's success. The company's move into the competitive southern city of
Guangzhou in 2002 was marked by electric rice cookers going on sale for nine
yuan, VCD players for 99 yuan and Siemens and Motorola mobile-phone handsets
for just 199 yuan and 399 yuan. Within three days of opening, the outlet sold
1,500 color TVs, 1,200 refrigerators, 1,000 air-conditioners and 970 washing
machines.
To raise funds for further expansion, and to cash in on his success so far,
Huang was already looking to a share listing.
In 2002, he bought 85.6% of Hong Kong-listed Capital Automation Holdings, a
small property and investment firm, in a deal that valued the company at
HK$161.8 million. Huang renamed the acquired company China Eagle Group and in
June 2004 injected 65% of Gome into the main board-listed vehicle in a deal
worth 8.8 billion yuan. China Eagle was then renamed Gome.
To dominate the market, Gome sought acquisitions as well as organic growth,
with one deal in particular gaining notoriety - the pursuit of Shanghai-listed
consumer electronics store chain Sanlian Commerce, which was involved in
Huang's alleged irregularities in asset swaps.
In March 2008, loss-making Sanlian Commerce told the Shanghai exchange that a
subsidiary of Gome had agreed that February to pay 541.12 million yuan for a
10.69% stake. After the announcement, Sanlian's shares rose by the 10% daily
limit time and again, but the acquisition never materialized.
Meanwhile, concerns on how Huang had made his first bucket
of gold were raised in 2006 when Niu Zhongguang, former head of Bank of
China's Beijing branch, was arrested in October 1 that year. Huang Guangyu's wife,
Du Juan, had worked at the branch in the 1990s as a loan officer.
Caijing, an influential financial magazine, said in its October 30, 2006, issue
that Huang was under investigation for allegedly receiving 1.3 billion yuan in
illegal loans from the Bank of China's Beijing branch 10 years earlier and had
yet to repay the funds.
Gome later denied the report and said in a statement that Huang's "assistance
in the investigation" ended in January, 2007. However, the People's Daily
quoted sources from the public security authorities as saying Huang had been
closely watched since then.
Huang's rise and fall mimics the fate of other newly rich Chinese businessmen
who have dropped from grace due to fraud or stock price manipulation.
Liu Genshan, a former chairman of Hong Kong-listed hotel operator Mexan, and
dubbed "China's tollway king", was ranked the country's 15th richest person by
Forbes in 2003. He was arrested in July after being accused of acquiring a 30%
stake in Shaoxing Yongjin Highway Development Company from a government-owned
company for an artificially low price of 127 million yuan, when the stake
should have cost at least 433 million yuan.
Chau Ching-ngai, also known as Zhou Zhengyi, a former president of the
Shanghai-based property firm Nongkai Development Group, was arrested in
September 2003 on charges of stock price manipulation and falsifying records of
a company's registered share capital. Sentenced to three years in prison in
June, 2004 and released in May 2006, he is now serving his second prison term
for involvement in a social security scandal that rocked Shanghai in 2006.
Yang Bin, former chairman of Euro-Asia, a Shenyang-based orchid grower that
collapsed in 2002, was ranked as the second-richest man in China by Forbes in
2001 with assets of US$900 million. He is serving an 18-year sentence for fraud
and bribery handed out in Shenyang in July 2003. His company was delisted in
May 2004.
Gome, at least, has been spared that fate.
Olivia Chung is a senior Asia Times Online reporter.
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