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.
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