Shandong Heavy takes 75pct in yachtmaker Ferretti

Chinese machinery maker Shandong Heavy Industry Group on Tuesday sealed a deal to take a 75 per cent stake in debt-laden Italian yachtmaker Ferretti Group, the latest in a series of Chinese acquisitions of European brands.

The deal would help Ferretti better tap the €7 billion global yacht industry and meet growing Chinese demand for luxury goods for the coming five to 10 years," Ferretti Group Chairman Norberto Ferretti said in the statement.

"China is one of the most rapidly developing countries for the yachting sector and has great potential," the companies said in a joint statement released at a signing ceremony in the eastern Chinese city of Jinan.

Shandong Heavy Chairman Tan Xuguang said the Chinese company would provide Ferretti with resources including new marketing channels and capital support to expand more effectively into emerging markets.

Under the deal, Ferretti's debt of €580 million would be fully acquired, John Davison, global head of strategic investment at Royal Bank of Scotland Group Plc, one of Ferretti's main creditors, told reporters.

The Italian company would also receive an equity injection of €100m and an €80m loan, he said.

RBS and Strategic Value Partners, another creditor of Ferretti, would each take a 12.5 per cent stake in the yachtmaker as part of the capital injection, Davison said.

Founded in 1968, Ferretti was saddled with €1.2bn of debt in 2007 after the company's leveraged buyout by Candover Partners. The company defaulted on its debt in January 2009 during the economic downturn.

Lenders to Ferretti agreed in April 2009 to write down the debt to €560m in return for a 53 per cent stake in the company from Candover, which lost its investment in the business.

"Synergy between the group and Ferretti can be unleashed through the sharing of resources and industrial integration," said Shandong Heavy's Tan.

Shandong Heavy, which makes construction machinery, power systems, commercial vehicles and auto parts, is the ultimate parent of Hong Kong and Shenzhen-listed diesel engine maker Weichai Power Co Ltd. Shandong Heavy had operating income of 107.6 billion yuan in 2010.

The statement said Shandong Heavy would retain Ferretti's key management team, headquarters and production bases in Italy.

Beijing has said it wants companies to acquire top global brands as a short cut to global success, a trend evidenced when automaker Geely bought Ford Motor Co's Volvo car unit in 2010 - and traceable back to 2004 when Lenovo Group Ltd bought the personal computer business of International Business Machines Corp.

Aiming to take advantage of Europe's financial woes, more Chinese companies are looking to pick up European assets on the cheap.

Shandong Heavy's deal followed last month's $3.5bn acquisition of the Portuguese government's stake in utility EDP SA by China Three Gorges Corp.

Bank of China Ltd was among lenders eyeing parts of RBS, as the process began to trim the investment banking arm of the government-owned British bank, sources told Reuters last week.

Ferretti, which owns the Pershing, Riva and Ferretti Yachts brands, last year signed a non-binding memorandum of understanding with Shandong Heavy for a joint venture, with the aim of developing a partnership to design and selling motor yachts in greater China and other emerging markets.

Ferretti ranked the first in the 2011 Global Order Book, the benchmark annual report on the global nautical industry by specialised magazine ShowBoat International.

The global yacht market has been in decline since the financial crisis in 2008 causing industry consolidation, while China's yacht imports increased threefold from 2009 to 2010, according to the joint statement.

Simpson Marine, an international yacht brokerage based in Hong Kong said it had so far not seen a slowdown in Chinese demand for yachts.

"The opening of new marinas, yachting facilities and yachting events in China, especially on the Southern Coast, is actually fuelling demand for yachts," said Olivier Burlot, Simpson Marine's group managing director.