Carlyle’s Second Strike?

Saturday, April 7, 2007 12:38

Carlyle is by far one of the most aggressive groups in China right now. When they first “entered” China, they announced a billion a year in China…. and it took them no time to start making announcements.

Last year though, their 85% stake in Xugong Manufacturing Group (XCMG) hit a snag.. a big one.. and as we have covered on a few occasions (here, here, and here), it is one that has forced Carlyle to accept lower and lower percentages of the deal at rates much less favorable. In fact, the most recent offer of 45% is widely believe to still be too high to close on.

I am still curious as to why Carlyle is pushing so hard on this deal. Maybe it is because one of their other holdings wants to take all of XCMG’s 2007-2009 production, or maybe it is face. But to me they are risking it all on one deal, and it isn’t coming as much of a surprise when the reports from IHT, Forbes, and others have surfaced about Carlyle’s recent bid for Chongqing City Commercial bank being on the edge of failure.

The deal particulars according to the Forbes article are 7.99% for 326 million RMB (41-42M USD).. a small sum by almost any Carlyle measure, but big enough to keep the CBRC from signing off.

Given ANZ Bank has closed two deals in last 6 months, Standard Chartered has invested, and others have been successful as well, it is interesting that one of the largest funds would not be seen as fit to invest in a bank. After all, they have proven themselves at managing money and are already heavily invested in this sector.

So.. why is the central party and CBRC holding back?

It cannot be because they are not approving other investors.

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3 Responses to “Carlyle’s Second Strike?”

  1. China Law Blog says:

    April 9th, 2007 at 10:51 am

    Good questions, to which I do not have any real answers. I will say, however, that I saw one of the top people on TV for about 45 minutes (I was on a cross trainer at the time, so took no notes) and this guy knew China business as well as anyone I have ever heard. So based on that anyway, I am going to give Carlyle a pretty wide berth here.

  2. China Law Blog says:

    April 9th, 2007 at 6:02 pm

    Whoops. My comment should have said that I saw one of Carlyle’s top people on TV. Not one of the top people …

  3. rbrubaker says:

    April 11th, 2007 at 3:04 am

    Hi Dan,

    Knowing China business is one thing, and making it happen is another. I think the fact that Carlyle’s partner in the deal for Chongqing Commercial got approval and they did not is a big sign that their approach is not working.

    Playing politics with the Xugong deal was not a smart play, and I think that no matter how well their top guy (Rubinstein?) may be able to articulate their China knowledge on a TV (What show?) they need to ratchet down the rhetoric, stop talking to reporters, and get to work.

    oh… I am sure that Gutierrez’s comment that what China needed was a 1000 Carlyle’s did not help them either.