Bain, KKR Size Up Stake in China’s GOME

HONG KONG (Reuters) – Kohlberg Kravis Roberts & Co and Bain Capital are emerging as contenders to make rival bids for a large stake in China’s top electronics retailer GOME (0493.HK), dealmaking sources told Reuters.

GOME, whose founder and ex-chairman are being investigated for alleged financial misconduct, aims to sell a stake of up to 20 percent to new investors to improve its capital base, said the sources briefed on its plan.

The stake is worth about HK$3 billion ($385 million) based on GOME’s last closing price of HK$1.12 per share, but dealmakers expect an investor to get a steep discount.

Warburg Pincus [WP.UL], which already holds a minority stake in GOME, is also expected to participate in the planned private placement to increase its holding, the sources said.

Other potential investors who looked at GOME earlier this year, including Carlyle Group [CYL.UL] and Chinese private equity firms Hopu Investment Management and CITIC Capital, have shown less interest, the sources said.

“The interest of some funds in GOME is still there, while others like Carlyle give the impression they prefer to watch from the sidelines,” said one of the sources.

CITIC Capital, backed by China’s largest financial conglomerate CITIC Group, manages $1.6 billion in assets.

Beijing-based Hopu Investment Management is a $2.5 billion fund run by top Chinese dealmaker Fang Fenglei, who helped Goldman Sachs (GS.N) set up its China investment banking joint venture some years ago.

No formal bid has been made yet for China’s version of Best Buy (BBY.N), and dealmakers do not expect a transaction to take place in the near future.

GOME is due to report its 2008 results on Monday and the Beijing-based retailer aimed to resume trading of its shares soon afterwards, said the sources. Its shares have been suspended since Nov. 24.

The sources said foreign funds with interest in GOME had been anxiously waiting to see GOME’s results as the financial information available beforehand has been very limited.

GOME, KKR, Carlyle and Bain Capital all declined to comment, while Warburg Pincus, CITIC Capital and Hopu were not immediately available for comment.

The sources declined to be identified as they were not authorised to speak to the media.

EARLY BIRDS

Earlier this year, GOME hired investment bank Cazenove to advise on its possible new share issuance in a private placement to potential foreign investors. [ID:nHKG266892]

Potential foreign investors, including Bain and KKR, are also concerned about the outlook for GOME’s share performance once trading resumes as some existing individual and institutional shareholders may rush to sell, said the sources.

“The outlook for its shares is quite uncertain, which also makes the outlook for a deal with new foreign investors a bit uncertain,” one of the sources added.

Liu Haifeng, a China managing director of KKR, is reviewing the potential GOME deal for KKR.

Liu, a former Morgan Stanley (MS.N) banker in China, has close personal ties with Chen Xiao, who replaced Huang Guangyu as GOME’s new head.

Huang, once China’s richest person, and his wife Du Juan, together still hold about 35 percent of GOME shares and the future of those holdings will be mostly up to the Chinese government pending the results of a police proble, said the sources.

Jonathan Zhu, a Hong Kong-based managing director for Bain Capital and a former top Morgan Stanley China banker, is also reviewing a possible GOME bid, the sources added. ($1=HK$7.8)

By George Chen
(Editing by Mathew Veedon)