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Uncertain times at appliance king

GOME Electrical Appliances Holding Ltd, China's biggest consumer electronics retailer, saw its shares fall throughout last year. Gome shares closed on November 21 at HK$1.12 (14 US cents). Just a year ago its share price was as high as HK$21. Trading of its shares was suspended on November 24 after Chairman Huang Guangyu was detained on charges of suspected market manipulation.

Gome has consolidated its position through vast expansion in the past few years including merging with China Paradise Electronics and gaining control of Dazhong Electrical Appliances and Sanlian Commercial Co.

But Gome is now under severe financial stress and there have also been media reports that the company is already facing difficulties in getting short-term credit from suppliers.

"Gome faces a tough year," said Wu Meiping, an analyst from Essence Securities Co. "Leases of more than 100 of its stores will expire this year. Lenders may impose stricter controls over Gome because of this.

"There is mounting liquidity pressure due to high inventory and slow demand. In addition, concerns are growing because of Huang's detention," Wu added.

Many suppliers have shortened their terms to two months from half a year, while Gome has lost its edge in price negotiations with the suppliers due to a tightening of credit.

Gome is reportedly seeking institutional investors from China and abroad to buy a stake in the firm to shore up its cash flow. However, the sale of any stake would need the approval of the majority shareholder Huang, who holds 36 percent of Gome.

Chen Xiao, the acting president of Gome, has said Gome will scale down its spending and expansion this year. Capital expenditure last year reached 2 billion yuan (US$292 million).


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