(Yicai Global) March 28 -- Gome Retail Holdings’ stock price fell after shareholders of the Chinese home appliances retailer gave the green light to its plan for a debt-for-equity swap that will see Gome’s founder increase his control over the unprofitable business.

Gome’s shares [HKG: 0493] ended 3.2 percent lower at 12 Hong Kong cents (2 US cents) each today, bringing the stock’s decline to about 74 percent over the past 12 months. 

Nearly 79 percent of Gome’s shareholders approved the plan, which will see Huang Guangyu and affiliated parties control nearly 25.7 percent of the company’s outstanding shares, the Beijing-based firm said in a statement yesterday.

The firm revealed the debt-for-equity plan on Jan. 18, according to which Shinning Crown Holdings and Gome Management, both owned by Huang, will convert HKD780 million (USD99.7 million) of interest-free loans and a CNY119.3 million (USD17.3 million) debt repayment to Gome suppliers into a 16.7 percent share of the company so that Huang will have a larger stake in Gome Retail.

Gome expects to have made a net loss of nearly CNY19 billion (USD2.76 billion) last year, it said on March 10. The firm’s board is due to review its earnings report at the end of this week.

Gome, which was once one of the biggest electronics chains in the country, will close unprofitable outlets and work on solutions to its problems, an insider at a regional branch told Yicai Global. “These two months are critical for Gome to find ways to replenish its cash flow,” the person said.

To boost the retailer’s working capital, Huang has pared his stake several times since last year. As of late 2021, he still owned almost 61 percent of the firm's equity.

Gome Retail’s net assets fell 6 percent to CNY20.2 billion as of June 30, 2022, from Dec. 31, 2021, and its debt-to-total-equity ratio was around 176.4 percent, per a letter from an independent financial advisor that the firm released on March 10.

Gome Retail had about CNY6.9 billion (USD1 billion) of overdue loans as of Feb. 3, it said on Feb. 28. It is negotiating with creditors about refinancing or extending the maturity of these loans, the company added.

Editor: Emmi Laine, Xiao Yi