* Deal will enable Shandong Heavy to upgrade engine technology
* Diesel engine unit Weichai Power “to challenge global players”
* Cost of making yachts in China up to 30 pct cheaper than Italy
By Alison Leung
HONG KONG, Feb 9 (Reuters) - China’s biggest maker of bulldozers is betting its takeover of Italy’s Ferretti, the world’s largest yacht maker, will help it take on global engine makers such as Caterpillar Inc in powering some of the world’s most expensive leisure boats.
State-backed Shandong Heavy Industry Group, parent of diesel engine maker Weichai Power Co Ltd , agreed in January to pay 178 million euros ($233.6 million) for 75 percent of debt-ridden Ferretti.
The deal would give Shandong Heavy access to technological know-how and enable it to make homegrown luxury boats and better engines, Daniell Chen, chief representative of Ferretti’s Shanghai office, told Reuters.
“There is still a big technology gap between their diesel engines and the German engines used in Ferretti yachts now,” Chen said, referring to the engines made by Germany’s MAN SE and Tognum AG. “But based on our boat-building technology, (Shandong Heavy) can develop better engines.”
A Shandong Heavy spokesman told Reuters that Weichai Power planned to develop engines for luxury yachts such as Ferretti and that access to world-class designs would give it a platform to experiment with and upgrade its marine engines.
Weichai mainly makes heavy-duty truck engines, but also produces some for fishing and service boats, helped by its purchase of French marine engine maker Moteurs Baudouin in 2009.
“If they can produce (yacht engines) in China, they will have a cost advantage to compete with Caterpillar and others,” said Standard Chartered analyst Rebecca Tang.
Hong Kong’s Cheoy Lee Shipyards, which makes luxury yachts in China for export, uses Caterpillar engines.
Caterpillar, the world’s biggest heavy machinery maker, is also one of the world’s largest makers of high-speed diesel engines. Other engine makers include Germany’s Tognum, which is controlled by Daimler AG and Rolls-Royce Holding Plc , and South Korea’s Hyundai Heavy Industries Co Ltd .
Shandong Heavy Chairman Tan Xuguang said he had big hopes for the Ferretti deal, which is subject to Italian regulatory approval.
“Weichai, through cooperation with Ferretti, will develop the most advanced propulsion system,” Tan told reporters after announcing the deal in mid-January. Hong Kong-listed shares of Weichai Power, which has a market value of nearly HK$70 billion, have risen about 19 percent since mid-January when the deal was announced, beating an 11 percent rise in Hong Kong’s benchmark Hang Seng Index .
Taking control of a well-known European brand such as Ferretti, whose yachts can cost more than $100 million, is something Shandong Heavy is eager to cash in on, especially in its domestic market, where foreign luxury names are prized as status symbols.
Ferretti’s production base would remain in Italy, Chen said, adding that Shandong Heavy would also produce yachts with Ferretti in the coastal Chinese province of Shandong and these could be sold under different brand names and tailored for domestic tastes.
Shandong Heavy, which also makes construction machinery, power systems, commercial vehicles and auto parts, has said it plans a separate listing for Ferretti in Hong Kong, which would likely increase its brand awareness in China.
China has 960,000 euro-millionaires and 60,000 super-rich with 100 million yuan ($15.89 million) or more, according to the 2011 Hurun Wealth Report, an annual China rich list.
But the country of 1.3 billion people has only about 1,500 private yacht owners, a survey by the Italian Trade Commission said. This compares with 600,000 recreational boats in Britain and 19 million in the United States, potentially providing big opportunities for companies in China.
“There is still no domestic luxury yacht engine maker in China and Shandong Heavy would like to fill that gap,” said a China-based industry expert with direct knowledge of the Ferretti deal, declining to be named as he was not authorised to speak to the media.
Foreign players already in China, where the cost of making a yacht can be up to 30 percent cheaper than in Italy, include Brunswick Corp and Seahorse Marine of the United States, while local players include Double Happiness and Sunbird Yacht Co Ltd.
While China’s yacht exports totalled $204 million in 2010, most key parts, such as engines, came from overseas.
In January, Shandong Heavy’s Tan said the group would step up overseas acquisitions, following in the footsteps of other Chinese companies scouring the world for relatively cheap assets and technological know-how.
Shandong Heavy competitor Sany Heavy Industry Co Ltd said late last month that it would pay 360 million euros ($472.4 million) for a 90 percent stake in concrete-pump maker Putzmeister Holding to expand overseas.