Carlyle confident of Xugong success

Despite the possibility of a rival offer from a local business and delays in regulatory approval, Carlyle remains positive that its $375m offer for Chinese construction company Xugong will be the first majority acquisition of a Chinese state-owned enterprise by a private equity firm.

US private equity firm The Carlyle Group is confident that a deal to acquire a majority stake in a Chinese construction business will go ahead despite competition from a local rival.
 
Carlyle agreed to acquire an 85 percent stake in China’s Xugong Construction Machinery Co for $375 million (€298 million) last October. The transaction is currently awaiting approval by central government regulators.
 
Earlier this week, local domestic heavy machinery manufacturer Sany Corporation announced that it hopes to buy Xugong in order to keep the company in Chinese hands.
 
Carlyle declined to comment, but a statement from vendor XCMG said that it and Carlyle have “continued to develop their strong relationship and commitment to the successful completion of the transaction. The two companies remain confident that the transaction is in the best interests for the development of China’s construction machinery manufacturing industry and XCMG”.
 
Sany Corporation’s interest in Xugong has sparked speculation that the Carlyle deal could fail on the back of hostile sentiment in China toward foreign investment in state-owned companies.
 
According to media reports, Sany Corporation’s chief executive, Xiang Wenbo, used a website blog to argue the case for Xugong remaining a Chinese-owned company. Other deals to recently face delays in regulatory approval include a Citigroup-led consortium’s $3 billion offer for Guangdong Development Bank; and a $200 million bid by UBS for a stake in Beijing Securities.
 
It is believed that Xugong views Carlyle’s bid as more attractive as it would provide the business with funds for international expansion and development. Some market observers have questioned whether Sany Corporation could provide a similar level of support, considering that its own sales figures are reportedly three times less than Xugong’s.