Bain in HK$3.6b deal to acquire Gome stake

PUBLISHED : Saturday, 13 June, 2009, 12:00am
UPDATED : Saturday, 13 June, 2009, 12:00am

Bain Capital Asia has spent HK$3.6 billion to become the second-largest shareholder in Gome Electrical Appliances Holding after buying new shares and convertible bonds in the mainland's largest electrical appliance retailer.

The United States private equity fund bought 2.484 billion new shares in Gome at 67.1 HK cents each through a placement.

The new shares are equivalent to 16.29 per cent of the company's enlarged share capital.

As a result of the transaction, the stake held by former chairman Wong Kwong-yu will be diluted to 29.7 per cent from the initial 35.55 per cent. However, he will still be the largest shareholder, according to sources and a filing to the Hong Kong stock exchange yesterday.

The private equity firm, which has US$60 billion in assets under management, also bought HK$1.9 billion worth of convertible bonds that could convert into 1.63 billion new Gome shares with an exercise price of HK$1.18 each, sources added.

There has been speculation that Mr Wong wanted to keep his position as the largest shareholder. However, Gome has tried to distance itself from the embattled founder, who is under investigation for 'economic crimes'.

If it fully exercises the convertible bonds, Bain is expected to own a 24.4 per cent stake in Gome, which would be less than Mr Wong's 26.8 per cent.

Since the outbreak of the scandal, Gome has been under cash-flow pressure. It must repay 4.6 billion yuan worth in convertible bonds in May next year.

Trading of Gome shares, which was suspended since November last year, is expected to resume soon after the completion of the share sale and the release of an independent audit report, which is examining the assets of the listed company.

The last closing price of Gome was HK$1.12. A fund manager said the 'grey market' price has been up to about HK$1.50 recently.

UBS analysts tipped the stock to go up after trading resumed because the retailer's business has shown signs of improvement and the recent market rally indicated Gome shares have room to rise.

Benefiting from some improvement in home sales on the mainland, the decline in Gome's same-store sales growth slowed to 21 per cent in the first quarter, compared with a 36 per cent drop in the fourth quarter of last year, UBS said in a report.

The report forecast same-store sales would improve later this year and next year with declines of 8 per cent and 2 per cent, respectively.