HONG KONG (Reuters) – Shares of Chinese electronics retailer GOME Electrical Appliances Holdings (0493.HK) doubled on Tuesday when trading resumed after U.S. private equity firm Bain Capital agreed to invest up to $418 million.
GOME, dubbed China’s Best Buy, on Monday agreed a high-profile deal for Bain Capital to invest via convertible bonds and new share offerings, easing investors’ concerns over the retailer’s stretched balance sheet.
The deal, which would give Bain up to 23 percent of GOME’s shares and make it the second-largest stakeholder, is a lifeline for GOME and should boost its earnings prospects, analysts said.
“A major concern, the liquidity risk, has been removed,” said Debby Zhu, analyst at KGI Securities, referring to the investment GOME would receive from Bain Capital.
GOME shares raced higher as they came off a 7-month trading halt, gaining 107 percent. By the midsession, the stock was up 77 percent at HK$1.98.
The stock was suspended on November 24 after reports that GOME’s ex-chairman and founder, Huang Guangyu, was being investigated for alleged financial irregularities. After the Bain deal, Huang would remain as GOME’s top shareholder with 25.3 percent.
Merrill Lynch upgraded GOME to “buy” from “underperform,” saying the short-term risks were now under control.
“We believe the worst is over and it’s time to revisit the name (stock),” analyst Chen Luo said in a research note.
Mavis Hui, analyst at DBS Vickers Securities noted GOME may have turned the corner given strong leadership in China’s home appliances market and a positive outlook for domestic consumption, spurred by the government’s stimulus measures.
“Bain Capital’s global experience should also help to enhance GOME’s corporate governance standards,” she said.
GOME’s same-store sales dropped 28 percent in January-March, less than a 36 percent fall a year earlier, KGI’s Zhu said.
(Additional reporting by Doug Young and Nerilyn Tenorio; Editing by Dhara Ranasinghe)