More hurdles could await ground-breaking deal
By Liu Baijia (China Daily)Updated: 2007-03-20 09:28
Xugong, a major local construction equipment maker, may not be in The Carlyle Group's bag just yet as the case may have become a testing ground for the government in managing State-owned assets and regulating foreign acquisitions in key sectors.
Shenzhen-listed Xugong Science & Technology issued a statement on Friday saying its controlling shareholder, Xugong Construction Machinery Group, had agreed to sell 45 percent of its stake to Carlyle.
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Last October, Carlyle reached an agreement with State-owned Xugong to buy 50 percent of its stake for 1.8 billion yuan.
The original deal between the two parties signed in October 2005 required Carlyle to pay $375 million for 85 percent of Xugong. But following outcry that foreign control of a major construction equipment maker like Xugong might hurt national economic security and that State-owned assets were being sold cheap, Carlyle revised the terms of the deal twice in the past five months.
According to the Friday deal, Carlyle will only have a minority stake in Xugong so it's easier for it to get the approval of the Chinese authorities, which have reservations about foreign investors buying controlling stakes in key State-owned companies.
But despite the concessions, it may not be easy for the Carlyle-Xugong deal to go through in the near term.
Global private equity giants have been seeking out targets to buy. Thus China has attracted big names like Carlyle, Texas Pacific Group, and Kohlberg Kravis Roberts & Co.
The Chinese authorities, with deep concerns over economic security issues and
no ready experience in dealing with private companies, which buy into firms and
sell them for profits, have been trying to build a legal framework to regulate
such acquisitions.
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