China's Xugong says Carlyle investment deal dead

SHANGHAI, July 22 Tue Jul 22, 2008 8:43pm IST

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SHANGHAI, July 22 (Reuters) - Xugong Group Construction Machinery Co, China's biggest maker of construction equipment, has abandoned a plan to sell a stake to U.S. investment firm Carlyle Group [CYL.UL], a subsidiary of Xugong said on Tuesday.

Agreements covering the deal that were signed over the past three years have expired, and Xugong does not intend to continue pursuing an equity sale to Carlyle, Xuzhou Construction Machinery Science & Technology Co (000425.SZ) said in a statement.

Carlyle agreed to buy 85 percent of state-run Xugong for $375 million in October 2005. But the deal was criticised by some Chinese officials, who argued that the government was selling off state assets to foreigners too cheaply.

The U.S. firm was unable to obtain final approval from the Chinese government, although it scaled back the deal at least twice in an effort to make it more acceptable.

Sources close to the deal told Reuters last month that the government had begun to look for investors to replace Carlyle, and Xuzhou said it planned to issue new shares to its parent in exchange for industrial assets, which could amount to a stock market listing for Xugong.

Separately, Xuzhou estimated its net profit plunged to just 300,000 yuan ($43,988) in the first half of this year from 20.21 million yuan a year earlier, because of a surge in steel and other raw material prices, a rise in research and management costs, and higher tax payments. ($1 = 6.82 yuan) (Reporting by Andrew Torchia; Editing by David Cowell)

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