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PE firm buys stock in GOME under plan

GOME Electrical Appliances, a top China electronics retailer, yesterday said United States private equity firm Bain Capital has agreed to take up to a quarter of its shares under a plan to raise US$418 million or more.

GOME, whose founder Huang Guangyu is being investigated for alleged financial irregularities, said Bain Capital could end up with up to 4.1 billion of its shares, or 23 percent, on completion of the deal. Huang's shareholding will be diluted to 25.3 percent from the current 35.5 percent.

GOME, which competes with rival Suning Appliance, said it would issue US$233 million worth of seven-year bonds which are convertible into about 9 percent of the enlarged share capital of GOME, with an interest rate of 5 percent per annum to an affiliate of Bain Capital.

The company will also issue up to 2.48 billion new shares at 67 HK cents - about 60 percent of their price before shares were suspended in November - in an open offer to shareholders on the basis of 18 new shares for every 100 existing shares held.

If Bain, which is underwriting the new shares, were to take all of those and convert all of its bonds into shares, it would end up with 23 percent of GOME's enlarged issue share capital.

GOME expects to raise at least HK$3.24 billion (US$418 million) via the bond and share offerings, it said in a statement. The proceeds will be used for working capital.

"Bain Capital has extensive experience investing in retail businesses around the world and has built up substantial expertise in the industry," GOME said.

Bain will nominate three non-executive directors to the board of GOME.

Established in 1984 as a separate investment group from consultancy Bain & Co, Boston-based Bain Capital is one of the world's largest private equity firms, with about US$60 billion in assets under management.

The firm set up an office in Hong Kong roughly three years ago. Among its hires was Jonathan Zhu, a former Morgan Stanley banker who led the GOME transaction for Bain.

Bain's China investments include shopping mall operator JinSheng International, specialty chemicals maker Feixiang and Sinomedia.

Trading in GOME shares, which were last traded at HK$1.12, will resume today.

GOME expects operational and financial performance to have significant improvement in the second half, an executive told reporters in a news conference.

It posted a 37-percent fall in net profit for the quarter ended March to 321.99 million yuan (US$47 million).

Analysts expect GOME stocks will jump when the stock resumes trading.


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