Troubled electrical appliances retailer Gome is planning to raise capital through a share sale to counter alarming profit drops.
The company plans to sell 20 percent of the shares owned by its founder and former chairman Huang Guangyu, who is now in police custody, the National Business Daily yesterday quoted an insider of the company as saying.
The report said US private equity firm Kohlberg Kravis Roberts & Co, or KKR, has established an investment consortium with Bain Capital, and they are the most likely bidder for the stake at around HK$3 billion.
Fosun Group chairman Guo Guangchang and Hong Kong tycoon Li Ka Shing are also believed to be keen on acquiring the Gome stake.
Hutchison Whampoa, however, yesterday clarified that it has no interest in the deal. "We have no interest," Hutchison spokeswoman Laura Cheung was quoted by Reuters as saying. She said Li, who controls conglomerate Hutchison, was not even personally interested in investing in the company. Fosun officials were not immediately available for comment.
Gome's net profit for 2008 fell 7 percent from a year earlier due to the sluggish electronics market as a result of the financial crisis and the ongoing investigation of its founder's alleged illegal share trading late last year.
Analysts said the share sale will help the company get more capital for its development, and more importantly, emerge from the shadow of Huang's high profile scandal.
"The share sale will help improve the share holding structure of the company, and would be helpful for Gome to get out of the negative influence of Huang's incident," said Liu Buchen, a home appliance expert.
Yang Xia, analyst, Merchant Securities, said the most urgent problem faced by the company is its debts. The company had HK$4.6 billion of convertible debts in 2006. Its share price has dropped from the then HK$19.95 per share to HK$1.12 before it was suspended in November.
"To sell shares is the best move that Gome could make," said Yang, "It will be unable to pay bond holders if it wants to purchase the convertible debts back with its current capital."
A spokesman from Gome refused to comment or confirm the news yesterday and said the company has yet to release its first quarter numbers.
Trading in Gome shares has been suspended since November 24, 2008 after Huang's arrest. In spite of the crisis, Gome is still a valued investment target for its brand influence, market share and operating mode in the electrical appliance market, analysts said.
KKR, one of the world's biggest private equity funds, had made several investments in Chinese firms since it entered the country in 2006. It invested $100 million in Mengniu Modern Animal Husbandry (Group) Co, a branch of China Mengniu Dairy Co.
(China Daily May 27, 2009)