Wong Kwong Yu (Mr
Wong, a.k.a. Huang Guangyu, f.k.a. Wong Chun Kit) was unsuccessful
(48:52) in replacing the Chairman
Chen Xiao (Mr Chen)
and an executive director with his lawyer Mr Zou Xiao Chun (Mr Zou)
and his sister Ms Huang Yan Hong (Ms Huang);
GOME was successful (55:45) in re-electing the directors nominated by
Mr Wong was successful (55:45) in revoking the general mandate to
issue shares without first offering them to existing shareholders
Prior to the meeting, Bain converted its bonds into shares and now holds
9.98% of GOME (not 11.06% - it used the wrong denominator in
With a vote that close, clearly the matter was not over, and there was a
peace to be found. Otherwise, Mr Wong could have continued requisitioning SGMs
in the hope of getting lucky. Plus, it makes sense for GOME to sit down with Mr
Wong's representatives and negotiate an injection of the remaining stores
operated by Mr Wong's private business into GOME, at a price which other
shareholders, including Bain, can support. That part has not yet happened, but
on 10-Nov-2010, GOME
announced a truce in which Mr Zou will be appointed as an ED and Ms Huang as
a NED. First they have to enlarge the maximum number of directors from 11 to 13,
but that should be a formality
at the SGM on 17-Dec-2010.
Mr Chen's confession
Now, word reaches us from Beijing of an altogether more serious matter, in
the form of a research report by Matthew Forney's
Fathom China Ltd, for
GaveKalDragonomics. As we
said in our article of 7-Sep-2010:
On 10-Dec-2008... GOME reported that "the business,
operations and relationship with its suppliers has remained normal". That's
interesting, because the GOME management now claims in the
SGM circular that there was a "sudden withdrawal of credit facilities" and
an "acceleration of payment demands by suppliers" which "occurred following the
arrest and conviction of Mr. Wong"... Similarly, in two letters to
shareholders published in newspapers on 26-Aug-2010 and 30-Aug-2010, letters
which GOME has failed to file with HKEx, it states that following Mr Wong's
arrest, "relations with banks and suppliers were strained almost to breaking."
In the Fathom China profile on GOME, the researcher asked the Chairman, Mr
Chen, about these conflicting statements. The report quotes him as saying:
"In fact, the impact was big. I think anybody in that
situation would have said the same thing. If we’d said what was really
happening, it would have caused a bigger panic… But we weren’t directing those
comments to our shareholders. They were directed more to our partners, like
brands and suppliers. There was absolutely a problem, but if you go out and say
there’s a problem, then everybody would be worried."
There you go. Mr Chen admits that GOME lied when it told investors, in an
announcement filed with the regulators, that the business, operations and
relationship with its suppliers had remained normal. Mr Chen was CEO and acting
Chairman at the time of the announcement, and says that he knew it was a lie. It
is absolutely unacceptable for listed companies to lie in public statements, and
it is an offence under
Section 298 of the Securities and Futures Ordinance,
punishable on indictment by a fine of up to $10m and 10 years in jail. A
subsequent claim that investors were not supposed to read those statements is no
defence. Webb-site calls on the SFC to investigate.
Mr Chen wasn't the only member of the board and management who knew how bad
things were from November 2008 onwards. A video prepared during the shareholder
battle last August says it all:
While on the subject of false and misleading statements about a company's
condition, isn't it about time we saw some charges in the
CITIC Pacific case?
Update, late on 22-Nov-2010:
Tong Zhao, a director of GOME's public relations firm Brunswick Group Ltd,
writes "here are the official lines we'll use for media, for
Responding to comments on Webb-site, referring to a
Fathom China report on GOME, a GOME spokesperson said: “In what we
believed to be a casual conversation with someone who was writing a report on
the company and industry, we talked broadly and informally about a period two
years ago. There is no contradiction in fact between our public statements on
this matter which we stand by.
On December 10th 2008, a few weeks after
Mr. Wong’s arrest, the company correctly stated that business and supplier
relationships remained normal [emphasis added]. In letters in August 2010 we did indeed talk
about the credit crunch that came from the sudden withdrawal of credit
This is explained in our presentation to investors also of
August 2010, where GOME highlighted the steep fall in net credit available. This
is reflected in public filings at year end 08 and H1 09, showing decline from a
‘normal’ level of 3,646 million RMB at Q4 2008 to 2,033 million at Q2 2009.
Mr. Chen in no way meant to imply that what we said on December 10 2008 was
inaccurate, and point of fact it was not.”
The company's claim tonight that everything was normal on 10-Dec-2008, weeks after Mr
Wong was arrested, is unfortunately contradicted by the company's own
statements, made in the video shown above. Sometimes, when you are in a hole, it
is best to stop digging.
The English subtitles make the
situation in November and December 2008, including the date of the announcement, very clear:
Chen Xiao, Chairman:
"At the end of 2008, when Mr Wong’s incident took place and he
was detained by the Chinese government our company was severely affected. The
incident put the company under tremendous pressure."
Wang Junzhou, President:
"The company’s immediate liquidity shortage as
many banks stopped providing or reduced loans to GOME.""
Fang Wei, Director of Finance:
"Most of the banks that had been cooperating with us
immediately stopped extending credit lines to us. We originally had a
credit line of about 6 billion but within a week, it shrank down to 1 billion.
Our cash position at the time was only about 3 billion. We were facing an
estimated 5 billion capital shortage. Funds were very tight."
Mu Guixian, Vice President:
"The company’s crisis came as a big shock to our suppliers.
They became uneasy and panicky. They were cautious when supplying to GOME."
Sun Yiding, Vice President:
"The problems exploded in November 2008
causing great deal of difficulties to the company against the macro environment.
The founder’s incident caused instability with our relationships with suppliers,
banks and our employees. The series of events no doubt caused immense
difficulties to us."
Important notice: All material on this site, except where otherwise
accredited, is copyright to Webb-site.com. Media and researchers
are welcome to quote from articles on this site, provided that such quotation is
attributed to Webb-site.com. The information in this site should not
be relied upon by any person in making any investment decision. No
responsibility or liability is accepted by Webb-site.com or any person related
to it for any loss arising from or in reliance upon the whole or any part of the
contents of this site. Persons who are in any doubt about an investment or
potential investment should take professional investment advice. From time to
time parties associated with Webb-site.com may own long or short positions in
securities issued by or related to companies or governments on which we comment.