Beijing's largest chain retailer Wumart Stores Inc's stock suspension and sudden replacement of its chairman and co-founder has raised concerns about the company's ability to complete its expansion plans.

 

The company suspended trading of its shares on the Hong Kong Stock Exchange on Monday, pending the release of price-sensitive information.

 

The Standard, a Hong Kong-based English-language newspaper, said in a report yesterday that Zhang Wenzhong, chairman of Wumart's board and co-founder, was under government investigation over how he obtained the capital to set up Wumart in 1994.

 

Zhang is seen by many as a driving force at the company and a key to its future growth.

 

He is also under investigation for an allegedly improper relationship with a department of the National Developmental Reform Commission, China's economic planning agency, the report said without elaborating.

 

Wumart Group Branding Manager Fu Yu commented on Sina.com that Wumart's Executive Director Wu Jianzhong, who oversees human resources, had been appointed interim chairman. Fu declined to comment on Zhang's situation.

 

Calls to Wumart seeking further comment were not answered.

 

But an unnamed senior researcher at China Chain & Franchise Association said rumors were not just unverified speculation. The researcher noted that Liu Zhihua, the vice-mayor of Beijing, was under investigation for suspected bribery involving real estate projects and that a series of businesses and executives related to him were involved.

 

Wumart's stock last traded at HK$6.88 (US$1.13) in Hong Kong.

 

It paid 176.7 million yuan (US$22.1 million) in April for a 28 percent stake in Shanghai-listed supermarket retailer Yinchuan Xinhua, which operates four department stores and 23 supermarkets in Yinchuan in Northwest China's Ningxia Hui Autonomous Region.

 

It completed the acquisition of MerryMart ChainStore Development, the fourth largest retailer in Beijing, at the end of August. Wumart spent 279.5 million yuan (US$34.9 million) to purchase 75 percent of MerryMart.

 

Wumart spent HK$1.14 billion for half of Jiangsu Times, the second largest retailer in the Chinese mainland's biggest provincial economy, this month.

 

The company has already raised 500 million yuan (US$ 62.5 million) in funding for acquisitions and store openings this year.

 

Based on reports last Friday, Wumart plans to sell 101.3 million H shares at a price of HK$6.6 (US$1.08) per share, in order to raise HK$668.7 million for further expansion and acquisition.

 

According to its third quarter report, turnover of the Beijing-based chain retailer exceeded 1.46 billion yuan (US$183 million) with net profit of 55 million yuan (US$6.9 million), up 54.1 percent and 53.2 percent from the same period last year.

 

(China Daily November 16, 2006)