Goldman Sachs has reached a deal to buy a 20 percent stake of Yangfan Group Co, and the Wall Street bank will help the Chinese shipbuilder to go public as early as 2008, two sources with knowledge of the situation said on Tuesday.
Under the deal, GS Phereclus Holdings Ltd, a wholly owned unit of Goldman Sachs, had agreed to pay US$50 million in cash for 20 percent of Yangfan, one of China's oldest shipbuilders, based in eastern province of Zhejiang, after a year-long negotiations, said the sources who declined to be identified.
Yangfan has hired global accounting firm Deloitte to help it to prepare for an initial public offering of shares, and Goldman Sachs will sponsor the IPO, which could be launched either at home or abroad, said the sources.
The Yangfan deal came after Goldman Sachs and other overseas funds jointly bought a minority stake in Rongsheng Heavy Industries Group, a bigger rival of Yangfan, for about US$600 million in late 2007, industry sources had told Reuters.
"Goldman is very much interested in China's shipbuilding industry, which it believe has huge potential in the next few years," said one of the sources.
"Chinese shipbuilders are not only working for Chinese customers but also becoming more and more competitive and attractive in global markets," he said, citing low labor costs as one of the major advantages for Chinese shipbuilders.
EXPANSION IN EUROPE
Chinese shipbuilders, whether state-owned or privately run, have been reaping strong profits in recent years as shipping liners worldwide race to expand their fleets and take advantage of booming global trade.
Yangfan, which aims eventually to compete with much bigger state-owned rivals such as Guangzhou Shipyard International Co , is joining many of its peers in seeking to tap the capital markets to fund rapid expansion, which has been fuelled by China's booming global trade.
Rongsheng, also based in eastern China, is planning an IPO and Goldman Sachs is expected to sponsor its IPO after it invested in the Chinese shipbuilder late last year, according to industry sources.
Yangfan is expected to finish its IPO auditing in the first half of 2008 and is likely to float shares in the second half, while neither the size nor the destination of its IPO has been decided yet, the sources said.
Top executives at Yangfan hope an IPO could fund its rapid growth amid a shipping industry boom, and the Chinese privately held company wants to expand its market share in Europe, especially in Germany, the sources said.
"Yangfan has been in the European market for almost a decade and it definitely wants to expand further there after Goldman's investment and IPO," said another of the sources.
"Goldman's investment could be a plus to Yangfan's business expansion in Europe as probably few people know who Yangfan is but everybody knows who Goldman is," he added.