According to Ming Pao today, Leung Ngok, the Chairman of U-Right (0627), has been declared bankrupt by the Hong Kong High Court. He is the first chairman of a HK-listed company to be bankrupt in this financial crisis.
Probably because U-right (627) is a quite well-known brand in Hong Kong, the HK media have a reasonably wide coverage on the provisional liquidation of U-right today. TV News, Web Site News all have features on U-right today. According to these news reports, U-right owes around HKD 1.3 billion to banks. They will close around 10 out of the 90 stores that have in Hong Kong and the people who are fired are mainly back-office staff. The provisional liquidator also reveals that there are 3 suitors interested in bidding for U-right. Is it Bossini? Giordano? Or do the suitors just want the listed shell?
According to a Chinese newspaper, Deloitte Touche Tohmatsu has been appointed as the provisional liquidator for U-right (627). Hopefully the company will not go through liquidation as I firmly believe that their business is quite sound and they are just unlucky enough to have short term liquidity problem in this credit crunch.
U-right, similar to Bossini (592) or Giordano (709), is an apparel retailer, but focusing more to the lower income group of people. Surprisingly the trading of U-right’s shares was halted abruptly at 10:24 am yesterday and the last traded price was $0.014. At the beginning of 2008, the shares were trading at $0.25.
Its share price has dropped more than 90% this year and according to Basis Point, there was a meeting held last week by the creditors who are concerned about the big decline of U-right’s share price.
This is indeed a death spiral. A lot of the small caps have dropped more than 70% this year. Then banks become very concerned about the company and as a result few banks pull out the loans or credit facilities they have with these small companies. Without adequate funding, the share price drops further and more banks become more concerned and ask the small companies to repay. Without enough cash, what can they do? They will fold.
As banks can stop providing supports for reputable names such as Lehman Brothers and AIG, it is not surprising to see that banks can easily pull out funding from a no-name company like U-right. R.I.P.
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