Print

Mail

wiki links

Carlyle to buy minority stake in Xugong

US-based Carlyle Group has agreed to buy a minority stake in Xugong Group Construction Machinery Co (徐工機械), the Chinese construction company said yesterday, after an earlier bid for a majority share prompted a nationalist outcry.

The deal has been closely watched amid US government warnings about possible Chinese protectionist sentiment.

The agreement would give Carlyle 45 percent of a joint venture formed with Xugong, the company said in a statement released through a Chinese stock exchange in Shenzhen.

It didn't give a price and said the deal still requires Chinese government approval.

This was the second time Carlyle cut the size of the stake it was seeking.

In 2005, it offered US$375 million for 85 percent of Xugong, which said it wanted the investment in order to grow in a market dominated by Caterpillar Inc and Japan's Komatsu Ltd.

But that bid, which was endorsed by local Chinese authorities, sparked complaints in China about asset sales to foreigners -- which in turn prompted Washington to express concern about the handling of such offers.

Carlyle last year reduced the stake it wanted to 50 percent.

Even though China got some US$60 billion in foreign investment last year, the foreign takeover of existing companies is still unusual.

The office of Xugong's president refused to release additional details.

The new deal will give the Washington-based Carlyle four seats on the nine-member board of the new joint venture, said Xugong, which is based in Xuzhou, Jiangsu Province. The Chinese company will get five seats and appoint the chairman.

Carlyle is one of the world's largest private equity funds, with US$44 billion invested around the world in industries ranging from manufacturing and power generation to media and telecoms.

After the uproar over the Carlyle bid, the Chinese government announced that makers of construction equipment must consult Beijing before selling large stakes to foreigners.

Senior Chinese officials reportedly held an unprecedented meeting last year to decide how to proceed on the Xugong deal.

US officials have expressed concern that official Chinese support for foreign participation in the country's economy might be weakening now that China has met its market-opening pledges to the WTO.

In a December report, the US Trade Representative's office said Chinese market liberalization had slowed last year.

Chinese regulators have also held up a bid by European steelmakers Arcelor SA and Mittal Steel Co NV to buy a mid-size Chinese competitor, Laiwu Steel. The companies are offering 2 billion yuan (US$250 million) for a 38 percent share in the company.

A spokesman for Laiwu Steel said last week that Chinese officials want more money and other unspecified conditions "for the sake of protecting China's domestic steel industry."
This story has been viewed 1056 times.