Despite public concern that its founder and ex-chairman Huang Guangyu still calls the shots with his majority holding, Gome, dubbed as China's Best Buy, is right on track for strengthening competitiveness and corporate governance to lead China's consumer electronics market.

After the refinancing agreement was completed in late July, Gome announced on Monday that it has appointed three non-executive directors from Bain Capital to its board. These are Zhu Jia, Ian Andrew Reynolds and Wang Li Hong.

In June, Bain Capital agreed to subscribe to convertible bonds and shares of Gome, making it the second-largest shareholder in the retailer with a 10-percent stake.

"Having rich experience in the global retail industry, Bain Capital can add great value to our business development. Their broad corporate expertise will also assist Gome with continued focus on good governance," said Chen Xiao, chairman and president of Gome.

"We expect to support the company in developing business and strengthening corporate governance," said Zhu Jia, managing director, Bain Capital.

The blind overexpansion and unprofessional management during the past few years have squeezed Gome's profits and led to a slew of loss-making stores nationwide. The financial crisis which slowed growth in China's consumer electronics market is also affecting the margins of the electronics retailer.

"Gome needs a more professional management team to fasten its growth," said Lu Renbo, senior household appliance expert from the State Council Development Research Center.

Challenged by Suning's aggressive expansion and the second-largest player's higher profitability, Gome is still believed to be the most promising company in the industry, thanks to its large retail network and the potential of the Chinese consumer electronics market.

"Gome will remain as a leader in China's robust retail market in the foreseeable future," Chen Luo and Denise Chai from Merrill Lynch wrote in a report.

The share offer plan, through which Gome planned to raise capital worth HK$1.5 billion, has got support from the market and suppliers.

Commercial banks had earlier been unwilling to grant loans after Huang was detained, while retailers and suppliers were also pushing the company against the wall.

"Suppliers had pressed for quick repayments earlier as they were not too sure of the company's future. The fund-raising, however, would increase Gome's cash flow and cheer suppliers," said Kenny Tang Sing-hing, head, Redford Securities Research.

Gome earlier said it expects to boost profits per store this year by optimizing the product mix and services and improving relations with suppliers.

"After the refinancing plan was implemented, we will focusing on targets," said He Yangqing, Gome spokesperson.

But what is really concerning is the Huang impact. Although Bain Capital is entitled to the three non-executive positions on the board as planned, the company will have no management control in Gome. More than that, among Gome's five executive directors, two are representatives of Huang, one is Huang's trusted follower, while Huang nominated another. It seems that only Chen Xiao, the newly elected chairman, has nothing to do with the ex-chairman.

The impact of Huang does not end there. By the end of July, Huang, still held in police custody for alleged illegal share trading, had spent HK$549 million to acquire 816.3 million shares from Gome, and increased his share to 34 percent from 33.7 percent, making him the dominant shareholder.

(China Daily August 5, 2009)