The Carlyle Group Agrees to Acquire an 85% Stake in Xugong Group Construction Machinery Co., Ltd. for US$375 million (RMB 3 billion); Transaction Will Help China's Leading Construction Machinery Producer Grow Domestically and Internationally

Xuzhou/Hong Kong - Global private equity firm The Carlyle Group today signed a definitive agreement to purchase an 85 percent shareholding in Xugong Group Construction Machinery Co., Ltd. (XCMC), the largest construction machinery manufacturer and distributor in China, for US$375 million in cash. XCMC is currently owned by Xuzhou Construction Machinery Group (XCMG), which will retain a 15 percent holding in the company. XCMG is wholly owned by the city government of Xuzhou.

The transaction is the culmination of a restructuring process under the guidance of the Xuzhou city and Jiangsu provincial governments. The aim of the restructuring is to expand internationally XCMC’s leading national brand. This process will improve technology management expertise and corporate governance, and provide capital for the structural reform and growth of the business. The governments of Xuzhou city and Jiangsu province have given strong support to this transaction, which would be one of the largest foreign investments into the province.

The agreement follows a lengthy and rigorous auction process, with two rounds and six international bidders. The auction was conducted under the guidance of the Xuzhou Asset Exchange Centre in accordance with central and local government regulations on the transfer of state owned assets, which emphasize open, equitable and impartial principles. JP Morgan was the independent financial advisor to XCMG and XCMC in the transaction. All relevant authorities were invited to participate in the thorough and detailed appraisal process for all bidders.

The Chairman of XCMC, Mr. Wang Min, said: "This is the right choice for a win-win outcome. It will unload our heavy historical burdens as an SOE, build an energetic and competitive system in the company, help us reach out to more international channels, and realize the dream of several generations of Xugong people to build an international brand. Carlyle will also bring technological innovation and new investment projects. XCMC will become a much stronger enterprise and be prepared for international expansion."

Managing Director and Co-head of the Carlyle Asia Buyout Group, Mr. X.D. Yang, said: "We are excited about this important investment in XCMC, one of our largest in China. The XCMC management team has built a solid business, and we look forward to working with them to create a leading international construction equipment company with deep roots in China's fast developing industrial sector and creating an international brand."

Carlyle is an experienced investor in the industrial sector. Since its inception, Carlyle has invested globally US$11.8 billion in more than 40 industrial companies. Current industrial companies under management recorded combined revenues of more than US$12.7 billion and in total employed more than 54,700 people worldwide in 2004.

The transaction will trigger a mandatory general offer to other shareholders of Xuzhou Science & Technology Co., Ltd. (XSTC), a 43 percent-owned subsidiary of XCMC that is listed on the Shenzhen Stock Exchange. XCMC and Carlyle are committed to growing XSTC, which will also benefit from XCMC’s development in domestic and international markets, and the strengthened Xugong brand.

The transaction has obtained Xuzhou government approval, and is now in the process of completing Jiangsu provincial government approval and appropriate central government regulatory approvals.

About XCMG

Xuzhou Construction Machinery Group (XCMG) is a state owned enterprise and wholly owned by the Xuzhou city government. Besides owning XCMC, XCMG has two wholly owned subsidiaries - Xuzhou Construction Machinery Transmission and Axle Company and Xuzhou Slewing Ring Bearing Company. The company also has two joint ventures with Caterpillar (Xuzhou) Limited and Xugong Special Purpose Vehicle Limited.

About XCMC

Xugong Group Construction Machinery Co., Ltd (XCMC) was founded on July 28, 2002, and is wholly owned by XCMG. XCMC develops, manufactures and markets products, which include hydraulic cranes, road compaction and surfacing machinery, earth moving and loading machinery, concrete equipment, construction equipment, aerial fire fighting trucks, special purpose vehicles, special chassis for construction equipment, drive axles, hydraulic components and basic construction machinery components.

In the year to December 31, 2004, XCMC’s total sales were RMB 6.59 billion. The company’s registered capital is RMB 1.253 billion.

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