China's state assets watchdog has approved the sale of a 50
percent stake in Xugong, a leading Chinese construction machinery
manufacturer, to Carlyle Group, a United States (US) private equity
firm, the Economic Observer newspaper said here Sunday.
The State Assets Supervision and Administration Commission has
approved Carlyle's revised bid for Xugong. The deal requires
approval from the Ministry of Commerce (MoC) before it can come
into effect, the report said. It quoted a source close to the
deal.
The source said the new offer was very likely to be approved as
it had been prepared with MoC guidance.
Carlyle originally offered 370 million US dollars for an 80
percent stake in Xugong. The deal was submitted to the MoC for
approval in December last year. It was turned down amid rising
concerns that foreign control of key Chinese firms could threaten
the country's economic security.
The parties signed a new deal in mid-October in which Carlyle
reduced its stake to 50 percent. They paid 1.8 billion yuan or
approximately 225 million dollars.
The company chairmanship will be with Xugong but Carlyle will
have equal representation on the board. The new deal has been
approved by the congress of employees as well as the Xuzhou city
government and the government of east China's Jiangsu Province
where the company is located.
The Carlyle deal has sparked off a hot debate in China about the
potential impact of foreign control of leading firms in the
manufacturing sector.
The Carlyle controversy is drawing attention to other
'questionable' deals such as the proposed takeover of the Luoyang
Bearing Corporation, a leading producer of bearings in China, by
German-based Schaeffler Group.
The debate prompted the MoC and other authorities to promulgate
new rules in August concerning the acquisition and takeover of
Chinese enterprises by foreign investors. The new regulations,
which took effect on September 8, state that such acquisitions and
takeovers must be approved by central authorities in three specific
cases.
They are: the foreign bidder has a market share of over 20
percent and annual sales in China of over 1.5 billion yuan (190
million dollars); the market share of one of the parties to the
deal will reach 25 percent after the acquisition; the foreign
bidder has acquired more than 10 Chinese enterprises in one
year.
In its 11th five-year-plan the MoC said China would seek to
improve the quality of foreign investment and put in place a system
for monitoring the impact of such deals on domestic industries.
Zhao Jinping, a scholar with the Development Research Center
under the State Council, said it was common international practice
for governments to impose restrictions on mergers and acquisitions
by foreign companies.
"As rules and regulations are fine-tuned the government will be
able to handle such cases more easily and transparently," he
said.
He Manqing, a MoC expert on multinational companies, predicted
that mergers and acquisitions by foreign investors in China would
increase sharply over the next few years now that rules had been
set.
For some people, however, Carlyle's revised offer is still not
good enough.
Xiang Wenbo, who vehemently opposes the move and sparked the
debate by revealing the deal on his blog, said the 50-50 share
structure would not guarantee China's control of the firm as is
required by government rules.
Xiang is general manager of Sany Heavy Industries Co., a rival
who also bid for Xugong. Xiang said Xugong had deliberately
excluded Sany and all other rivals from the deal.
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(Xinhua News Agency November 13, 2006)