Goldman May Have To Pay More For China Tool Maker Stake

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Goldman May Have To Pay More For China Tool Maker Stake

 

After watching a pair of China deals slip through its grasp, Goldman Sachs Group Inc. (GS) may be able to save a third - by paying more.

 

Goldman was stung twice this year when the stock prices of two companies it had struck deals with rocketed during long regulatory reviews. Fearing a public outcry over share purchases that might appear to favor foreign investors over mainland stock buyers, the country's securities regulator has balked at the gap between prices agreed upon in earlier deal negotiations and the share values commanded in China's booming stock market, private equity funds in China say.

 

Now, Goldman has gotten the green light from the China Securities Regulatory Commission to buy 12% of a Shanghai-listed tool maker - provided the Wall Street firm sweetens the deal that was struck a year ago, a person familiar with the transaction says.

 

Under deal terms struck last November, measuring-tool maker Chengdu Yangzhiguang Industrial Co. would issue 370 million new shares, 60 million of which a Goldman Sachs investment unit called Jade Dragon (Mauritius) Ltd. would purchase for 3.99 yuan apiece, or CNY239.4 million.

 

Today, however, the tool maker's stock is trading at about three times its market price when Goldman made that deal. On Monday, the shares closed at CNY25.83. Shanghai-listed A-shares, which are mostly for domestic investors, have soared 92.4% so far this year.

 

The person familiar with the agreement says Goldman is talking to regulators about how to revise its bid. A spokesman for Goldman declined to comment on any new bid.

The conditional approval comes after a pair of Goldman deals failed in recent months. About a week ago, regulators rejected an offer by a Goldman Sachs private equity fund to pay around CNY890 million yuan (approximately $119.4 million) for a 10% stake in Fuyao Group Glass Industries Co., a Shanghai-listed company that makes automotive glass. In late summer, the regulator overrode a Goldman offer for a stake in home-appliance maker Guangdong Midea Electric Appliances Co.

 

The firm's difficulties don't seem to have spilled over into deals for companies that are not publicly traded. This month, a consortium including Goldman and U.S. hedge fund D.E. Shaw & Co. forged a preliminary agreement to buy a minority stake in an unlisted Chinese ship builder, Jiangsu Rongsheng Heavy Industries Group Co., a transaction that could amount to around $250 million. The deal awaits approval from regulators.

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