Chenming abandons deal with CVC

Debates over policy and board constitution have derailed plans for CVC to take Chenming private.

Shandong Chenming Paper, a Chinese paper maker, has pulled out of a May agreement under which CVC Asia Pacific, a private equity fund backed by Citigroup, would have become the Shenzhen-listed company’s largest shareholder.

In a statement to the Shenzhen Stock Exchange, it cited differences over future policy and board membership.

The deal, which would have granted the fund a 30 per cent stake in the company through a private placement, is a sign of challenges facing foreign investors in the country, according to a report in UK paper Financial Times.

The deal could have been the largest yet by a private equity fund in China, amid a nationalist backlash against foreign involvement in the economy that has threatened a number of other high-profile investments.

Chenming gave no details of its differences with CVC Asia Pacific, saying only that, after extensive negotiations, “no agreement” could be reached on the “future business concept and structuring of the board”.

Chinese analysts say managers sometimes find it difficult to surrender control to foreign investors, even when they believe such investment is essential to making ventures internationally competitive.

Chenming appears confident of finding alternative funding, saying in its weekend announcement it had applied for a Rmb6bn ($753m) long-term loan from a group of domestic banks to finance the pulp mill in southern Guangdong for which the CVC investment had been earmarked.