Huang Guangyu, former chairman of Gome Electrical Appliance who is being investigated for alleged financial irregularities, has spent HK$549 million (US$70.4 million) to raise his stake in China's top electronics retailer to consolidate his position as the biggest shareholder, thwarting United States private equity firm Bain Capital LLC's attempt to take a bigger stake in Gome.
Huang purchased 816.3 million of new issuing shares and raised his holding to 34 percent from 33.7 percent. The new shares will be floated tomorrow, Gome said in a filing to Hong Kong's stock exchange late Friday.
Analysts said Huang's taking more than one-third of the new share offerings is aimed at keeping his control over the retailer.
Huang may be aiming to prevent his stake from being diluted through buying new shares at a relatively low price with money raised in the open market, KGI Securities Research wrote in a note. Huang has sold off 235 million shares at HK$1.70 each through holding company Shining Crown on July 20 and raised a total of HK$400 million.
Gome was offering existing shareholders 18 shares for every 100 shares held at 67 Hong Kong cents each, a significant discount to Friday's closing price of HK$2.24.
Bain Capital had been in position to significantly increase its stake in Gome, with the amount depending on how many existing shareholders participated in the offer. But Huang's participation in the rights offering kept his stake from being diluted.
Under the offering, Bain Capital gained only a 0.2-percent stake. Including those shares, its stake in Gome would be 10 percent upon conversion of US$233 million worth of seven-year convertible bonds.
Bain Capital is also entitled to nominate three non-executive directors to the 11-member board of directors, according to the filing.
Bain Capital's investment could boost Gome's earnings and ease investor concerns over the retailer's working capital, BOC International wrote in a note.
(Shanghai Daily August 3, 2009)