GSX Founder Halts $3.9 Billion Wealth Slide With Personal Plan
(Bloomberg) -- Larry Chen’s announcement that he will spend as much as $50 million of his personal fortune to buy stock in his online tutoring firm GSX Techedu Inc. is already paying off.
The company’s American depositary receipts climbed 4.8% on Tuesday in the U.S., rebounding after a series of brutal trading sessions that included a record 52% two-day plunge. GSX was among the firms getting caught in the Archegos Capital Management fiasco that led to huge block sales as Bill Hwang’s family office was forced to liquidate more than $20 billion in equity positions.
Chen, whose net worth hit $15.6 billion in January, is now worth $3.7 billion, according to the Bloomberg Billionaires Index. The two-day stock slide through Monday erased $3.9 billion of his fortune.
The GSX founder, who’s also chairman and chief executive officer, said on Tuesday he will use his personal funds to purchase as much as $50 million of the Chinese company’s shares over the next year. He also clarified that he currently hasn’t pledged any of his equity interest in GSX as security or collateral, after previously using the practice.
Chen, who was born in a poor village in northern China, has one of the most volatile fortunes tracked by Bloomberg.
Since GSX’s ADRs began trading in New York in June 2019, they’ve been whipsawed as short sellers including Muddy Waters questioned its results. GSX withstood the attacks, but it disclosed in September it was being investigated by the Securities and Exchange Commission. In October, the stock tumbled after Credit Suisse Group AG downgraded it, citing increased competition for the company and “mistakes” during its summer promotion. It then recovered and hit a peak on Jan. 27 amid a retail trading frenzy that targeted highly shorted stocks.
Bets against the company have only increased since, with short interest reaching a record 75% of shares outstanding at the end of last week, according to IHS Markit Ltd. data. It was at 74% as of the latest data available on Monday.
Some view the recent slide as a turning point. Citigroup Inc. analyst Mark Li reversed his rating on the stock to a buy from a sell, saying the recent rout because of the large block trades and market fears of Chinese government regulation in after-school tutoring was overdone. The sector plunged last week after a report cited potential new rules including age limits, advertising restrictions and pricing regulation.
In an email Tuesday, a GSX representative said the company is “closely monitoring” regulatory changes and will issue a press release if there are any material changes to its business.
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