UPDATE 2-Goldman to buy strategic stake in China Midea http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-11-23T042127Z_01_SHA170188_RTRIDST_0_FINANCIAL-CHINA-GOLDMAN-UPDATE-2.XML&rpc=66&type=qcna
Wed Nov 22, 2006
(Adds no comments from Midea, details)
By George Chen
SHANGHAI, Nov 23 (Reuters) - Goldman Sachs (GS.N: Quote, Profile, Research) will buy into Midea, a manufacturer of air conditioners, freezers and dishwashers, making the U.S. investment bank the second-largest investor in the Chinese firm, an official paper said on Thursday.
A financial source familiar with the situation told Reuters that "a strategic investor" is about to buy into listed Midea (000527.SZ: Quote, Profile, Research). The source declined to elaborate.
Midea's domestic currency A-shares listed on south China's Shenzhen stock exchange were suspended from trading from Tuesday pending an announcement related to "important business matters". The counter closed at 12.79 yuan ($1.63) on Monday, having surged nearly 40 percent since the start of this month.
Beijing, aiming to lure more foreign cash, said this year it would let foreign investors take "strategic stakes" in listed firms by buying their freely-floated A shares for the first time, a new investment channel that is in addition to the Qualified Foreign Institutional Investor quota scheme. The rules require foreign investors to buy a minimum 10 percent stake in an A-share company and hold the shares for at least three years.
That would value Goldman's purchase at at least about $100 million based on Midea's total stock market capitalisation of more than $1 billion.
Goldman, which is the world's top adviser on mergers and acquisitions, has emerged as an aggressive private equity investor -- an activity critics say created potential conflicts of interest with some of its clients.
The reported attempt to buy into Midea comes after Goldman signed a deal this week to buy a $113 million stake in China's biggest auto glass maker Fuyao Glass (600660.SS: Quote, Profile, Research). Foreign private equity firms and funds alike have been searching for buys in China, the world's fastest-growing major economy.
Midea, established in 1968 in southern China, planned to issue new shares at a minimum of 9.09 yuan a share to Goldman in a private placement, and the New York-based bank would have the right to appoint one director to the board, Shanghai Securities News reported, citing sources.
The report said Goldman would become the second largest shareholder after the placement, but did not say how many shares Goldman would take.
"Goldman will not seek control of Midea for the time being," the newspaper quoted a source close to the situation as saying. "But Goldman will send a representative to Midea as a board director to participate in the company's management," it added.
Midea is currently controlled by its founder, He Xiangjian, a Chinese businessman with a 46.4 percent stake, which made him the top shareholder before shares were suspended.
A Midea official declined to provide reasons for the company's stock suspension. Goldman in Hong Kong was not immediately available for comment. Midea, a private company in China where state-owned enterprises still make up a major part of the economy, makes a range of home appliances from refrigerators to electronic fans.
The company posted a net profit of 382 million yuan in 2005, up from 327 million yuan in 2004 and 168 million yuan a year earlier. ($1 = 7.86 Yuan)
(Additional reporting and writing by Charlie Zhu)
© Reuters 2006. All Rights Reserved.