November 23, 2010 / 10:51 AM / 10 years ago

Draka's 1 bln euro mystery bidder shows "magic" of China

* Xinmao founded by a former Chinese air force senior officer

* Mid-sized Chinese company looking abroad for growth

* No information on Draka deal, says listed arm’s official

By Shengnan Zhang and Michael Smith

BEIJING/HONG KONG Nov 23 (Reuters) - The surprise 1-billion-euro cash bid that China’s Xinmao Group placed made for Dutch cable group Draka highlights the new wave of Chinese companies that are set to pounce on assets up for grabs across the globe.

After years of overseas M&A, China’s state-backed oil and financial majors such as CNOOC , Sinopec , ICBC and China Mobile are now recognised across much of the world.

The gatecrash by China’s Xinmao Group on an all-European cable industry takeover on Monday shows that lesser known, but just as voracious, Chinese companies are now in on the cross-border growth game — regardless of whether or not they’re a household name in the industry.

Xinmao proposed a $1.4 billion offer for Draka that was well above an agreed bid from Italy’s Prysmian , which had just announced it won over Draka, a market leader in cable in China, with its second takeover attempt.

“This is the magic of China,” said a Hong Kong-based investment banker, referring to the Xinmao offer, who did not want to be identified due to client sensitivities.

“It is the magic and the disturbing factor at the same time,” he said. “There are $3 billion (market capitalisation) companies in China that do this stuff that we still haven’t heard of. And they are active.”

Privately owned Xinmao Group has been in business since 2000, employing around 30,000 people.

According to local media reports, Du Kerong, a former senior officer in China’s airforce, founded the parent company, Xinmao Group. After leaving the military he went to work for a Tianjin-based import-export company before starting his own construction business. That business eventually became part of Xinmao Group.

The investment banker compared the surprise emergence of a private Chinese bidder to Sichuan Tengzhong Heavy Industrial Machinery’s bid for General Motors’ Hummer unit earlier this year, although the deal was later withdrawn after failing to obtain clearance from Chinese regulators.

With $42.6 billion spent abroad in 2009, Chinese companies rank third among the biggest foreign M&A investor nations after the United States and France — a sharp rise from 12th position over the last decade.

Much of that money was spent on natural resources-related deals. The Draka bid by Xinmao is the largest ever cable company offer by a Chinese company — a sector that China has not been as aggressive in terms of cross-border M&A.

Another European auction underway involves a relatively unknown China player, sources have previously told Reuters.

China National BlueStar, a state-run specialty chemicals company backed by U.S. private equity firm Blackstone Group , is in talks to acquire part or all of Norwegian solar silicon product maker Elkem AS, in a deal that could cost around $1 billion.


In addition to cable, Xinmao has energy and industrial interests as well.

Xinmao’s listed arm, Xinmao Science & Technology , is a partner of Xinjiang Goldwind Science & Technology , China’s second-largest wind turbine maker that raised $917 million in October in a Hong Kong IPO.

“We really have no information about price and (the source) of funds” for the Draka deal, according to a woman in the company’s investor relations department who identified herself as ‘Ms. Han’.

Xinmao was established to manage an industrial park in Tianjin, but tacked on other businesses as it grew, such as real estate and high tech.

Zhou Tao, an analyst with Great Wall Securities, said it is “unthinkable” how a Chinese company, which has a total market cap at 2 billion yuan, can complete such a deal. But Zhou surmised that Xinmao’s financing may come from a Chinese bank consortium. (Additional reporting by Heng Xie and Xize Kang in BEIJING) (Writing by Michael Flaherty; Editing by Muralikumar Anantharaman)

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