Chinese Company Buys Italian Luxury Yacht Maker

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By Reuters

JINAN, CHINA — The machinery maker Shandong Heavy Industry Group sealed a deal Tuesday to take a 75 percent stake in the debt-laden Italian luxury yacht maker Ferretti, the latest in a series of Chinese acquisitions of European brands.

Chinese companies have been taking advantage of Europe's financial woes by picking up assets relatively inexpensively, acquiring top brands as a shortcut to global success.

The deal for the Italian company also reflected the growing demand for luxury in mainland China, where new marinas are sprinkled along the southern coast.

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

The Ferretti Group chairman, Norberto Ferretti, said the deal would help his company tap the global yacht market, estimated at €7 billion, or $9 billion, "and meet growing Chinese demand for luxury goods for the coming 5 to 10 years."

Ferretti's management team, headquarters and production bases will remain in Italy, the companies said. Shandong Heavy said it planned to build yachts in China for the domestic market.

"China offers an opportunity to our companies, especially when our economy is not going well," said Anton Francesco Albertoni, head of the Italian marine industry association, Ucina.

Italy has long dominated the yachting industry, which contributes €3.36 billion to the country's economy annually.

"Chinese are learning fast and well," Mr. Albertoni said. "They love their marinas and golf clubs."

Shandong Heavy will seek a separate share listing for Ferretti in Hong Kong in three to five years, the chairman, Tan Xuguang, said.

Under the deal, Ferretti's roughly €580 million of existing loans will be reduced to €116 million. In addition, Ferretti will receive a new €80 million revolving credit facility, said John Davison, global head of strategic investment at Royal Bank of Scotland, one of Ferretti's main creditors.

Shandong Heavy will make a €178 million equity investment for its 75 percent stake in the business. There will also be a €100 million capital increase, Mr. Ferretti said.

Lenders will receive the remaining 25 percent stake in Ferretti through an additional €25 million equity injection, with Royal Bank of Scotland and Strategic Value Partners each receiving half.

Founded in 1968, Ferretti was saddled with €1.2 billion 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.

Ferretti's lenders agreed in April 2009 to write down the debt to €560 million in return for a 53 percent stake from Candover, which lost its investment in the firm.

Shandong Heavy makes construction machinery, power systems, commercial vehicles and automobile parts. It is the parent of the diesel engine maker Weichai Power, whose shares are listed in Hong Kong and Shenzhen. Shandong Heavy had operating income of 107.6 billion renminbi, or $17 billion, in 2010.

Ferretti, which owns the Pershing, Riva and Ferretti Yachts brands, ranked first in the 2011 Global Order Book, the benchmark annual report on the nautical industry by the magazine ShowBoat International.

The 2008 crisis hit the yacht industry hard, prompting many companies to seek partners in cash-rich emerging countries, a trend that is likely to continue as the euro zone's debt crisis shows no signs of abating. In China, yacht imports increased threefold from 2009 to 2010.

"The opening of new marinas, yachting facilities and yachting events in China, especially on the southern coast, is actually fueling demand for yachts," said Olivier Burlot, managing director of the international yacht brokerage firm Simpson Marine, based in Hong Kong.

Other Chinese companies that have made big acquisitions overseas include the automaker Geely, which bought Volvo from Ford Motor in 2010, and Lenovo Group, which bought the personal computer unit of I.B.M. in 2004.

Last month, China's Three Gorges Corp. purchased the Portuguese government's stake in the utility Energias de Portugal for €2.7 billion.

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