French infrastructure provider Alstom Holdings has agreed to buy a stake in a medium-sized Chinese boiler manufacturer with the aim of making it a leader in the Asian and global market.

Alstom said it will buy a 51 per cent stake in Wuhan Boiler Co Ltd (WBC) from the Chinese firm's State-owned parent company for 329 million yuan (US$40 million) in cash, pending regulatory approval.

The French company, which provides equipment and services to energy and transportation sectors, said in a statement that it will introduce new technology and improve management to boost WBC.

The parent company, Wuhan Boiler Group Co Ltd, will have its stake diluted from 57.9 per cent to around 6 after the transaction, WBC said in an exchange filing to the Shenzhen Stock Exchange, where it is listed.

Alstom Holdings' wholly owned subsidiary Alstom (China) Investment Co Ltd, on behalf of the parent company, signed an agreement with the WBC to purchase 151 million of WBC's foreign currency-denominated B shares, making it the controlling shareholder of the boiler manufacturer based in Central China's Hubei Province.

"Alstom's involvement in the WBC is set to increase competition in China's machinery sector, led by Sichuan-based Dongfang Boiler Group Co Ltd and Wuxi-based Wuxi Huaguang Boiler Co Ltd," said Zhou Fengwu, a stock analyst with the Orient Securities Co.

Sales revenue from some 500 boiler and related material manufacturers in 2004 rose by 40 per cent over the previous year to 37 billion yuan (US$4.6 billion) and net profits climbed by 58 per cent to 1.6 billion yuan (US$200 million), the latest statistics show.

"The transaction underlines foreign investors' interest in the machinery sector in general, as best illustrated by Carlyle Group's acquisition of Xugong Science & Technology Co six months ago," said Lu Jiehua, a stock analyst with the Shenyin Wanguo Securies Co.

The US-based private investment bank announced it would acquire a 85 per cent stake in Xugong, a heavyweight in China's mechanical engineering industry, last October. The acquisition gave rise to speculation that more companies from the same industry such as the Shanghai-listed Xiamen Engineering Machinery Co and Shenzhen-listed Xuanhua Construction Machinery Co are to sell their stakes to interested foreign investors.

By acquiring a 51 per cent stake, Alstom puts remaining WBC shares subject to buyout bids, as Chinese acquisition regulations stipulate that a foreign investor with more than a 30 per cent stake in a Chinese-listed company must bid for the remaining shares at a stated price.

Alstom offered to buy the remaining 6 per cent stake held by Wuhan Boiler Group which is nontradable at a price of 2.18 yuan (27 US cents) per share and all the tradable shares at 2.08 yuan (26 US cents) per share. WBC shares closed at 2.45 yuan (31 US cents) per share on its last trading day.

WBC shareholders have 30 days to tender their shares to Alstom.

Wuhan Boiler Group has declined Alstom's tender offer, it said in the exchange filing yesterday. Analysts say, given the relatively low price Alstom is offering to holders of WBC's tradable shares, Alstom's bid for the 6 per cent stake is unlikely to proceed.

(China Daily 04/19/2006 page12)

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