Creditors will sell 75 percent of Ferretti (FER) for 178 million euros ($228 million) to Shandong Heavy Industry Group-Weichai Group, according to a statement handed to reporters today in Jinan, China. Royal Bank of Scotland Group Plc and Strategic Value Partners LLC will also own 12.5 percent stakes in the Forli, Italy-based boatmaker.
State-controlled Shandong Heavy plans to add superyachts to its construction and farming products after surging economic growth boosted China’s number of millionaire households 31 percent in 2010. The deal may help Ferretti, whose Riva unit made boats for Brigitte Bardot and Sean Connery, to expand in the world’s most-populous nation after a slump in sales after the 2008 financial crisis left it near bankruptcy.
“China (CNGDPYOY)’s super-rich are looking at yachts and jets because the country has so much money now,” said Richard Tai, luxury- goods analyst at Shanghai-based research firm China Research & Intelligence. “It just shows China’s phenomenal economic development over the past 30 years.”
Ferretti, which also makes Ferretti, Pershing and Betram brand yachts, will retain its existing management as well as its headquarters and production facilities in Italy, according to a statement. The company’s yachts can cost more than $100 million.
The deal, which requires approval from Italian regulators, will take three to six months to complete, Tan Xuguang, Shandong Heavy’s chairman, told reporters today. Shandong province, which controls the company, contains the city of Qingdao, a major naval base and host of the 2008 Olympic sailing regatta.
Ferretti will get 198 million euros of debt financing from Shandong Heavy, whose units include bulldozer-maker Shantui Construction Machinery Co. (000680) and Hong Kong-listed engine-maker Weichai Power Co. (2338) The deal also includes 100 million euros of new equity and a reduction in Ferretti’s debt to about 100 million euros.
The yachtmaker may be listed in Hong Kong within five years of the deal, said Tan. Ferretti sold about 17 vessels in China last year, he said. The country had about 1.11 million millionaire households in 2010, according to Boston Consulting Group.
“Ferretti is a high-end brand and Chinese consumers have not yet evolved to such high-end consumption,” Tan said. “Over the next five to ten years there will be great potential for yachts in china.”
China Yacht Demand
While there were as many as 400 dollar billionaires in China, the country only had about 100 Chinese-owned yachts longer than 60 feet as of May, according to Rupert Hoogewerf, who compiles the Hurun Report of wealthy Chinese. There were more than 7,000 yachts that size in the U.S. in 2006.
“If the Chinese can use the labor force in an intelligent way, the opportunity is spectacular,” said Marco Elser, a partner at AdviCorp Plc., a London-based investment banking firm. Still, it may take until 2020 to turn Ferretti around because of Italian labor laws, he said.
Shandong Heavy received financial advice on the deal from Citigroup Inc. (C), Houlihan Lokey and ICBC International Holdings Ltd., according to the statement. King & Wood, Bonelli Erede Pappalardo and Akerman Senterfitt (1267L) acted as legal advisers.
Edinburgh-based RBS and Strategic Value were assisted by Rothschild and Ernst & Young LLP and by the law firms Ashurst and Clifford Chance.
The potential demand for yachts in China has lured overseas boat-builders such as Azimut Yachts, Sunseeker International Ltd. and Brunswick Corp. (BC) Domestic companies, including Xiamen Hangsheng Yacht Building Co., have also begun building superyachts
Other luxury-goods makers are targeting China as growth of less than 2 percent in Europe and the U.S. stifles demand in their traditional markets. Supercar-maker Automobili Lamborghini SpA expected to sell more vehicles in China than in the U.S. for the first time last year. Coach Inc., the biggest maker of luxury handbags in the U.S., has predicted that China will surpass Japan as its biggest overseas market within a few years.
Ferretti ceded control to lenders in 2009 when it missed a loan payment on debt used to finance its leveraged buyout. It went from planning an initial public offering in 2008 to reorganizing its debt in a matter of months as it customer base collapsed in the credit crisis.
In the 2009 debt-restructuring, a group of 100 creditors led by RBS agreed to convert some of their 1.2 billion euros of debt to equity to avert a Ferretti bankruptcy. Candover Investments Plc, which bought majority control of the yachtmaker in a 2007 leveraged buyout that valued Ferretti at about 1.5 billion euros, ceded its stake in the deal.
To contact the editor responsible for this story: Neil Denslow at email@example.com