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China's Xugong Group set to get $2.3 billion from GIC, others in SOE mixed-owner reform -sources

HONG KONG (Reuters) - Xugong Group Construction Machinery Co Ltd is set to receive about 14.8 billion yuan ($2.26 billion) from backers including GIC Pte Ltd, sources said, in one of China’s biggest mixed-owner reforms of a state-owned enterprise (SOE).

The deal is slated for completion by year-end, two people with direct knowledge of the matter told Reuters.

The mixed-ownership reforms aim to revive China’s bloated, debt-ridden state-owned sector and create globally competitive conglomerates by injecting SOEs with private capital. Under the scheme, China Unicom Hong Kong Ltd raised $11.7 billion in 2017 from investors including Alibaba Group Holding Ltd and Tencent Holdings Ltd.

Singapore sovereign wealth fund GIC and Chinese private equity firm CITIC PE together have agreed to invest 3.3 billion yuan in China’s biggest construction equipment maker in exchange for a 10.5% stake. That would make the duo Xugong’s single biggest shareholder among a dozen new investors, who will own a total of 46% after the deal, the people said.

The deal values Xugong at about 32 billion yuan, they said.

Xugong will then inject $2.1 billion in assets into Shenzhen listed XCMG Construction Machinery Co Ltd - of which it owns 38% - including its core excavator business, which recorded revenue of $2.4 billion in 2019.

Xugong will be dissolved after shareholders receive XCMG stock, the people said.

Xugong, advised by CITIC Securities Co Ltd, aims to complete the process by the end of 2022, said the people, who declined to be identified due to confidentiality constraints.

Xugong declined to comment on the investment from GIC and other new investors or on its asset-restructuring plan. It referred Reuters to XCMG’s corporate filing in September about its mixed-ownership reform plan.

XCMG, GIC and CITIC PE did not respond to requests for comment. CITIC Securities declined to comment.

Xugong is a diversified construction machinery manufacturer founded in the eastern province of Jiangsu and now has 40 offices globally, 15 manufacturing bases and five research-and-development centres. Its products include excavators, concrete mixers, cranes and dump trucks.

Its asset-restructuring plan mirrors that of many large, state-run Chinese firms, including top automaker SAIC Motor Corp Ltd, with benefits including a full listing, improved corporate governance and increased funding channels.

The restructuring will put XCMG be on a firmer footing to compete with expanding peer Sany Heavy Industry Co Ltd and foreign giant Caterpillar Inc.

($1 = 6.5388 Chinese yuan renminbi)

Reporting by Julie Zhu in Hong Kong; Additional reporting by Brenda Goh in Shanghai and Anshuman Daga in Singapore; Editing by Christopher Cushing

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