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  • Dec 26, 2014
  • Updated: 5:10pm

Gome in talks for Middle East foray

PUBLISHED : Tuesday, 12 June, 2012, 12:00am
UPDATED : Tuesday, 12 June, 2012, 12:00am

Hit by declining profit at home, Beijing-based Gome Electrical Appliances Holding is quietly exploring expanding to the Middle East through a joint venture company with a Lebanese businessman.

People briefed on the matter told the South China Morning Post that Gome, the mainland's second-largest home appliance retailer, was in early talks with an investment firm led by a wealthy entrepreneur from Lebanon.

The people declined to name the Middle East businessman in talks with Gome but would only say he had close personal ties to the Saudi prince Alwaleed bin Talal, a major investor of US financial services giant Citigroup. '[The businessman] approached Gome first and then they both thought it was a good idea to explore,' said one of the people who asked not be named because the discussions were confidential.

The potential move to expand abroad comes as Gome has been under increasing pressure. Last last month, Gome reported its first-quarter net profit sank 88 per cent to slightly more than US$10 million as sales fell nearly 30 per cent.

Shares in Gome, meanwhile, have lost more than 45 per cent of their value on the Hong Kong market since the start of the year, partly due to the company's weak business performance. The broader market has gained about 3 per cent.

If successful, the Middle East deal would mark the first international expansion for Gome, which was the mainland's No 1 home appliance retailer at one time, but later lost in the competition with current market leader Suning Appliance.

By comparison, Suning made its first international expansion as early as 2009 by taking a majority stake in Laox, a Japanese home appliance chain store operator, as a way of breaking into Japan's retail market.

The toppling of Gome followed a scandal involving the firm's founder, Huang Guangyu, also known as Wong Kwong-yu, who is still Gome's largest shareholder. He was put in jail in 2010 for bribery and insider trading and then the company went through a series of internal restructurings, and received new investment from private equity firm Bain Capital.

Bain Capital holds a near 10 per cent stake in Gome. Yesterday a spokesman for Gome said the company's policy was not to 'comment on market rumour and speculation'. Bain Capital was not immediately available for comment.

'It sounds like a win-win story if they can work it out in the end. The Middle East is of course a big market and Gome also wants to find a new growing point for its business,' said another person familiar with the negotiations.

The two parties have not signed anything formal and the negotiations could eventually collapse if they cannot agree on specific terms, the people said. One of the reasons that the Middle East group wants a tie-up with Gome is because it hopes to benefit from Gome's management expertise as well as good business relations with Chinese home appliance suppliers that could foster easy entry to some countries.

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