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    China Business
     Jan 14, 2012


Yacht-maker Ferretti finds new life in China
By Chris Stewart

HUA HIN, Thailand - To be rich is glorious, and it doesn't come much better than flaunting your wealth from the deck of a luxury yacht. Yet the purchase of Ferretti Group, the world's biggest maker of the floating palaces, by China's state-owned Shandong Heavy Industry Group-Weichai Group, was surely not what Deng Xiaoping had in mind when he voiced his now famed maxim to launch China's economic transformation three decades ago.

Shandong Heavy, China's biggest maker of bulldozers among other industrial machinery, is to invest a total of 374 million euros (US$480 million) in return for a 75% stake in the debt-laden Italian yacht maker. Royal Bank of Scotland Group Plc and Strategic Value Partners LLC will each own 12.5%. The deal, which

 
requires approval by Italian regulators, is expected to be concluded within six months.

Shandong Heavy follows other Chinese companies in buying a fading Western brand name with the aim of reviving its fortunes while securing its technological and manufacturing skills. Most famously, Lenovo bought up IBM's struggling personal computer division in 2004, eventually securing a successful turnaround in the unit's fortunes. More recently, Zhejiang Geely Holding Group bought Sweden's Volvo Cars in 2010.

Ferretti, founded in 1968, has been struggling to stay afloat for years after an ambitious expansion in the 1990s that included the purchase of Bertram Yacht, the famed Miami-based maker of sport-fishing vessels, and Italian company Riva, noted for its luxury fiberglass yachts.

A 2000 share listing on the Borsa Italiana helped to fund further purchases before it went private, only for the 2007-2008 global financial storm and mass lay-offs affecting big spenders in the banking and financial sectors to sink any remaining hopes that the market for top-end yachts would pick up.

A pre-crisis 2007 buyout valued the company at 1.5 billion euros, before a 2009 debt restructuring, led by RBS, averted bankruptcy and saw the then majority owner, Candover Investments, give up its stake. The continuing euro debt crisis, with Italy to the fore, removed any hopes of a bailout closer to home.

In spite of the battering in financial squalls, the 43-year-old company is still led by co-founder and chairman Norberto Ferretti.
Shandong Heavy's gamble is that China's growing echelon of extremely rich folk, who are already splashing out on fancy items such as private jets and Rolls Royces, will have cash to spare for a Ferretti, whose yachts can cost as much as $100 million.

The country has 146 dollar billionaires, according to Forbes last year, when China became the biggest market for Rolls Royce. The auto company, owned by Germany's BMW, said this week it has "sold out" of a $1.2 million "Year of the Dragon" Phantom model before China celebrates the turn of its calendar later this month. Maserati sold about 780 cars there last year, making it the company's second-biggest market.

More than 130 executive jets are registered in China, the Walt Street Journal reported last May - the number is expected to grow as the Chinese economy expands, though it has a long way to go before matching the 15,000 in the US.

Shandong Heavy is well-placed for a sales pitch - it's home city of Qinqdao hosted sailing events during the 2008 Beijing Summer Olympic Games, while Shandong province, which controls the company, is home to an estimated 59 individuals with assets over 2 billion yuan (US$315 million), according to Hurun Report, which tracks the doings of the ultra-rich in China.

Weichai Power, an engine-making unit of Shandong Heavy, may also benefit from the deal. Involvement could boost is expertise in building specialist engines for large yachts that could help it expand beyond supplying Ferretti.

In 2009, Weichai Power bought Moteurs Baudouin in France to expand into the international high-end marine engine business. It has since invested more than 30 million euros in Baudouin. Weichai's Hong Kong-listed shares jumped as much as 4% after the Ferretti deal was made public and have gained 7% in the past week.

Shandong Heavy chairman Tan Xuguang said Ferretti, which sold about 17 vessels in China last year, may be listed in Hong Kong within five years of the deal, although Ferretti will retain its existing management as well as its headquarters and production facilities in Italy, according to a statement.

The purchase of Ferretti is dwarfed by overseas investments by state-owned companies in oil and ports, or even the possible purchase of US Internet company Yahoo by China's Alibaba, which could involve a $3 billion loan. Even so, it is in line with Beijing's desire to put China's growing foreign reserves to good use abroad, easing upwards pressure on the Chinese currency, the yuan. The United States in particular is urging that that the yuan appreciate to encourage China's imports and reduce the competitiveness of Chinese exports.

China's foreign reserves stood at $3.18 trillion at the end of 2011, after declining from $3.2 trillion at the end of September, the country's central bank said on Friday. It was the first quarterly contraction since the second quarter of 1998, according to Bloomberg.

Shandong Heavy's announcement of the Ferretti deal coincided with a visit to Beijing this week of US Treasury Secretary Timothy Geithner. The US has held back from accusing China of being a currency manipulator, which would open the way to sanctions, but Geithner was expected to discuss the currency issue while also seeking help in confronting Iran over its nuclear program, Bloomberg reported.

The yuan on Friday declined for the seventh day running as new data indicated slowing export growth, after gaining 4.7% last year.
While Shandong Heavy's goals for Ferretti appear realistic, China's economic growth may slow to below 8% this year, reckoned about the minimum necessary to absorb newcomers to the workforce. A new government is also due to take over in Beijing late this year, with possibly severe views on China's wealth gap. The goal of Ferretti's customers might then come into different focus.

About 60% of rich Chinese people intend to migrate from China, according to a study by Hurun Report and the Bank of China last year. A separate study by US-based Bain & Company and China Merchants Bank of individuals who hold more than 10 million yuan in investable assets found that about 60% of those interviewed had completed immigration applications to other countries or had plans to do so.

A 27-meter Ferretti 881, with a 31-knot maximum speed and a range of 355 nautical miles could be just the getaway vehicle if the political winds start veering from the wrong direction.

Chris Stewart is Asia Times Online business editor.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)


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