Bain Capital Invests in China's GOME

HONG KONG – Private-equity firm Bain Capital LLC has signed a contract to invest 3 billion yuan ($440 million) in Chinese retailer GOME Electrical Appliances Holdings Ltd., people familiar with the situation said Sunday.The moves comes as ripples surrounding alleged "economic crimes" committed by the company's former chairman, Wong Kwong Yu, spread. Shenzhen Mayor Xu Zongheng and his wife were put under shuanggui -- a form of detention imposed on party officials -- in an investigation into his alleged links to Mr. Wong, the South China Morning Post reported Saturday. The paper also said Mr. Wong was involved in share-price manipulation."Bain's investment will hopefully salvage shareholders' confidence and dilute people's concerns over Wong's influence on the company," one person said. "This is a credible house buying into the company, after much detailed due diligence."Under the contract, Bain will take up an 18% equity stake in Gome via open tender at HK$0.67 each and will subscribe to seven-year convertible bonds which can be converted into new shares, another person said. The bonds, with a conversion price set at HK$1.18 or a slight 5% premium over Gome's last trading price, would give Bain an added 12% stake at most in Gome, he said.GOME was last traded at HK$1.12 apiece. Its shares have been suspended from trading since Nov. 24, after an investigation began on its ex-chairman Mr. Wong.The investment will also give Bain three board seats in the company, the person said. Details of the deal will be announced as soon as Tuesday, another person said.When the conversion on the bonds into new shares is fully exercised, Bain will have an about 27% stake. Wong now has a 35.6% stake in Gome."Since Wong resigned from the chairmanship, Gome has been run by people unrelated to him," the first person said. "Wong is no more than a shareholder in the company now."Gome's management had gone through a major reshuffle since Mr. Wong, Gome's founder, resigned in January after he was suspended from his post in December. He was replaced by Chief Executive Chen Xiao, who has been chief since a company he founded, China Paradise Electronics Retail Ltd., was bought out by GOME.Gome has since been seeking fresh capital via a stake sale to private equity funds to shore up its balance sheet, at a time when its operations have been hit by the onset of the financial crisis and falling appetite for consumption goods.Gome, which has more than 800 retail outlets throughout China, had 3.05 billion yuan ($448 million) in cash and cash equivalents at the end of last year, but the retailer has to repay 4.70 billion yuan as convertible bonds it issued will mature next year. Kohlberg Kravis Roberts & Co. and Warburg Pincus expressed interest in the Beijing-based company earlier on, but later dropped out, leaving Bain as the only horse in the race. Warburg Pincus already holds a minority stake in Gome and has one nonexecutive director seat on the board.Cazenove Asia Ltd., which has been integrated into Standard Chartered PLC and N M Rothschild & Sons (Hong Kong) Ltd. are financial advisors to Gome.