Gome Electrical Appliances Holdings Ltd, China's largest electronics retailer, has confirmed what was widely known to punters on the Hong Kong stock market - the company needs money and is looking for investors.

The Beijing-based company said in a stock exchange statement that it was in negotiations with a number of potential investors, but did not provide details. "No binding agreement has been entered into," the statement said.

Of course, there has been more than one version of market talks about the company's money raising plan. But all the rumors have focused on Bain Capital LLC, Kohlberg Kravis Roberts & Co, and Warburg Pincus LLC's Warburg Pincus Asia, which are tipped as the most likely buyers of Gome's up to a 20 percent stake in a proposed new share issue.

Another version, reported by Bloomberg citing unnamed sources, is that Gome may sell one-fifth of its outstanding shares to Bain Capital LLC for about $500 million.

Trading in Gome's shares has been suspended in Hong Kong for six months as former Chairman Huang Guangyu is being investigated by the police for alleged economic crimes, including share manipulation.

A source close to the company's legal advisor said one of the major pitfalls of the transaction is Huang's holdings itself. Huang and his wife hold 35.55 percent of the company's shares. No new shares can be issued without his approval, the source said, but since he is in custody, his intentions are not known.

The company's shares will remain suspended pending "the release of further information relating to the fund-raising exercise and other price-sensitive information", Gome said in the announcement.

Gome stock fell 77 percent last year before its suspension in November. The benchmark Hang Seng Index dropped 54 percent over the same period.

The company said in a separate statement last week that its first-quarter net profit in 2009 fell 37 percent from a year earlier, dragged down by a sharp decrease in sales revenue. It posted a net profit of 322 million yuan. Revenue fell 19.5 percent to 9.80 billion yuan.

Citigroup yesterday raised its ratings on Gome from "sell" to "hold", and increased the target price from HK$0.60 per share to HK$1.3 per share, citing lower corporate governance risk after the smooth leadership transition.

It said, although the first quarter profit was lower than the same period last year, it was better than the fourth quarter last year. "It also reflects that the company is stimulating sales by cutting retail prices when consumption is weak," it said in a report.

(China Daily June 2, 2009)