Chinese electronics retailer Gome, whose chairman Huang Guangyu is currently under investigation for financial crimes, has started initial negotiations with foreign investors for the possibility of sales of stakes in the business.
Britain's Financial Times recently published a report which stated Gome's high level executives had contacted several overseas counterparts and global private equity firms about investment issues. It quoted an insider as saying if the negotiation about the strategic investment goes smoothly, Warburg Pincus Asia will play a key role. Starting from 2006, Warburg Pincus has been an important strategic investor in Gome.
In 2006, Warburg Pincus invested USD150 million in Gome by acquiring USD125 million convertible bonds and USD25 million warrants. After that, Gome completed a series of big operations, including the acquisitions of another two electronics retailers in China — Yongle and Dazhong. On May 14, 2007, Warburg Pincus sold 90.898 million Gome shares at HKD13.35 per share, cashing HKD1.213 billion. Upon completion of the transaction, Warburg Pincus gained HKD200 million profits and still held 85.78 million shares and warrants of Gome.
However, with the exposure of Huang's share manipulation scandal, the realization of Gome's promise to Warburg Pincus, which is to invest the retail assets of the parent company into its listed company before 2011 and to merge all of the parent company's retail networks on Chinese mainland into the listed company within five years, has become harder. Therefore, Warburg Pincus may implement more active operations and introduce new strategic investors to Gome.
Commenting on the news, Chen Xiao, who was appointed as acting chairman of Gome after Huang was investigated by the Beijing police, told local Chinese media that he does not know anything about these machinations and all major changes will be published on official company reports.