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Trading in the shares of Gome and China Paradise Electronics Retail, with which the former is merging through a US$675-million deal, was suspended yesterday amid reports that Gome Chairman Huang Guangyu was under probe for taking loans illegally.

 

Huang, the mainland's second richest man, and his brother Huang Junqin borrowed 1.3 billion yuan (US$164 million) from Bank of China's Beijing branch more than 10 years ago to start their business. And, according to Beijing-based Caijing magazine, they are yet to repay that loan.

 

But the mainland's biggest home appliance retailer has denied the report. A spokesman for the Hong Kong-listed Gome said that neither the company nor its chairman was under investigation by any public security authority, and late yesterday the company released a statement to clarify the situation.

 

Gome's takeover of China Paradise is proceeding normally and will not be affected by the suspension of trade, a company statement said. Gome shares fell 5.5 percent on Friday, even though the benchmark Hang Seng index rose by a record 1 percent.

 

Caijing magazine said the public security ministry had seized the assets of the companies controlled by Huang Junqin and was investigating whether the brothers had used some of the 1.3 billion yuan borrowed from BOC to speculate in real estate. It's also probing whether the Huang brothers had transferred funds out of the country.

 

The reported probe has damaged the company's reputation, with Citigroup downgrading it to "hold" from "buy" and heightening its risk rating.

 

The Beijing-based electrical appliance retailer is facing increasing competition from overseas rivals such as Wal-Mart. It agreed in July to buy China Paradise in an attempt to get a greater share of the market.

 

Huang Guangyu, however, said that he was confident of China Paradise's performance despite its drop in profit because of aggressive network expansion. "The alliance will help increase our market share and cut costs."

 

Huang, now 37, dropped out of school at the age of 16. He moved from Guangdong Province to Beijing with only a bag of radios, batteries and some other gadgets collected from factories in his hometown. But things for him have been as good as it gets.

 

(China Daily November 1, 2006)