Last Sunday, Gome Retail Holding announced its initiative to raise 200 million HKD through a convertible bond issue. The bond would be taken up by one of China's leading e-commerce platforms Pinduoduo on the hopes of aiding the retail industry to cope with the adverse effects of the pandemic to the sector.
The deal between Chinese electronics retailer Gome Retail Holding and Pindoudou was set up since December when the first signs of the pandemic emerged in China. It was created specifically to address the possible setbacks that the global retail industry might experience at that time. However, its implementation was only realized or would be put in effect from last Sunday's announcement.
Earlier this month, Pinduoduo already raised 1.1 billion KHD in a private share placement. The fund marked the company's first investment in another entity since the company started in 2015. The bonds were said to carry a coupon of five percent per annum and would lat for three years. The company also announced that it might extend the tenure for another two years.
The coupons would be convertible at 1.215 HKD per share, a 64 percent higher rate than Pinduoduo's closing share price of 0.73 HKD last Friday. The Gome shares, on the other hand, were set at 1.28 billion KHD that comprises 5.6 percent of its existing issued share capital. This would be allotted to the bond.
According to Pinduoduo's vice president of strategy David Liu, Gome would be benefited from the bond since it would broader its access to 585.2 million users. He also claimed that Pinduoduo would also share the benefits since the deal would enhance its mark in the household appliances and electronics markets.
He also added that Gome's subscription offers better opportunities to raise additional funds and strengthen its financial position. The deal was also referred to as an opportunity that would broaden the company's capital base that would allow it to further the entity's future growth and development.
Last March 31, the two companies jointly held a promotion promising to give away 500 million yuan worth of discounts to its users. The offer included cuts to consumption subsidies on more than 6,000 items on the platform. Suning.com and AliPay tackled the same business strategy. These campaigns were found to have stimulated consumption among Chinese users and improved the financial performance of the Suning.com and Alipay.
According to Market Screener, Gome also entered into a strategic cooperation agreement with Shanghai Sunmeng Information Technology Co., Ltd., Pinduoduo's subsidiary. The partnership would involve the undertaking of strategic cooperation of product purchase and sales, joint marketing, resource cooperation and support, and other similar services.
