Gome Electrical Appliances, China's largest consumer electronics retailers by store numbers, yesterday said it would raise no less than HK$3.24 billion by issuing convertible bonds to private equity firm Bain Capital LLC and also offer new shares that qualified shareholders including Bain Capital could subscribe to.

Gome to raise HK$3.24b via bonds, shares [CFP]

The move is expected to inject fresh capital to the company, which has been troubled by cash problems since late last year when its founder Huang Guangyu was taken into police custody for alleged share trading irregularities. The funds would also help Gome fend off the increasing competition from archrival Suning, the second largest consumer electrical retailer.

Gome shares, which have been suspended since Nov 24 last year, are set to resume trading from today.

According to the company's announcement, Bain Capital will subscribe to HK$1.8 billion seven-year convertible bonds that can be converted into Gome shares equivalent to 9.8 percent of the company's enlarged share capital.

Gome will also offer existing shareholders 2.3 to 2.48 billion shares at HK$0.672 each, and Bain Capital could fully underwrite the offer if the other shareholders said no to it. The whereabouts of the new shares will be announced on July 31, said the company.

Following the fund raising Bain Capital may end up having a stake of between 9.8 to 23.5 percent in Gome, depending on how much shares the other shareholders end up subscribing to.

But what is certain is that Bain Capital has emerged as Gome's second largest shareholder, after Huang.

The founder originally held 35.55 percent share in Gome, and it is estimated that his share will be diluted to around 30 percent after the deal.

"The deal is a milestone for Gome. We will be entering into a faster growth track," said Chen Xiao, chairman, Gome.

Last November, Huang was placed under investigation for alleged share trading irregularities, and since then, the company has been facing cash flow problems as commercial banks were not keen on lending to Gome due to fears over the negative impact of the scandal.