Xinmao lines up Minsheng Bank to support Draka

By Heng Xie and Melanie Lee

BEIJING/SHANGHAI (BestGrowthStock) – Minsheng Banking Corp (1988.HK: ) is ready to support Xinmao Group’s 1 billion euro ($1.3 billion) bid for Dutch cable maker Draka (DRAK.AS: ), a source said, lending credibility to a deal that is drawing skepticism among investors.

The surprise last-minute offer from the little-known Chinese company has threatened to spoil an agreed deal from Italy’s Prysmian (PRY.MI: ) to buy Draka — Europe’s No.3 — which also received a bid from France’s Nexans (NEXS.PA: ).

Xinmao gatecrashed the all-European takeover with a higher all-cash offer, but analysts have questioned the viability of its offer. A successful takeover by Xinmao would aid China’s plans to roll out broadband networks.

Xinmao and Mingsheng (600016.SS: ), China’s seventh-biggest lender “have been in close touch” about the bid, the source familiar with the deal said. The source declined to be named as he was not authorized to speak to the media. Ma, a spokeswoman for Xinmao declined comment.

Minsheng was founded by 59 private enterprises in 1996, including New Hope Group founder and billionaire Liu Yonghao, attracted well known investors including George Soros and Singapore state fund Temasek (TEM.UL: ) to last year’s $3.9 billion IPO. Minsheng is China’s first non-state backed lender.

Du Kerong, Xinmao Group’s chairman, a former Chinese air force officer, shares a similar background to China’s top mobile gear maker Huawei’s (HWT.UL: ) founder Ren Zhongfei, who also had a military background.

“Chinese government regulators are likely to support the bid because it has high-tech content, said Zhao Changhui, chief economist of the Export-Import Bank of China. He said he did not know if his bank was involved in financing the bid.

Regulators are likely to expedite approval, give it tax breaks and financial guarantee, he said, referring to bank loans,” Zhao said. China Construction Bank (0939.HK: ) should also be willing to back Xinmao’s bid, if Chinese regulator’s approve the takeover, another source told Reuters.

Du Kerong is in the Netherlands with a team of senior executives to negotiate the deal, another source, who also declined to be named told Reuters.

Xinmao does not have a track record of executing cross border deals and most of its growth has come from investments in new projects or funding expansions. The only other deal which a unit of Xinmao has done was to buy a 17 percent stake in a group company for about $6 million.

Xinmao, founded in 2000, employs around 30,000 people.

GOVERNMENT SUPPORT

Minsheng, with a market value of $21.3 billion, was among the wave of Chinese companies that went public last year amid a surge in the Greater China stock markets. It’s Hong Kong-listed shares lost 1.7 percent on Friday.

“A lot of these firms have done well on their own but have benefited greatly from government support,” said Mark Natkin, managing director for Marbridge Consulting.

“They get direct introductions to high ranking politicians, state-owned operators, potential customers and a lot of support in terms of very generous lines of credit for vendor financing,” Natkin said.

Tianjin’s city government has endorsed the bid and hinted of wider state support.

Still, the market is still uncertain about the success of the Chinese bid. Draka shares have never traded above Xinmao’s offer price of 20.5 euros and on Friday they were down 0.6 percent at 19.09 euros.

Xinmao said its bid for Draka was to utilize the firm’s core technologies to develop the Chinese market. However Tianjin Xinmao’s presence in the Chinese market has been muted.

China accounted for 46 percent of global demand for fiber optic cable in 2009, though consumption from Chinese network operators dropped by 11 percent in the first nine months of 2010, according to market research firm CRU.

Xinmao is not widely known outside of China which has led some bankers to compare this deal to Sichuan Tengzhong Heavy Industrial Machinery’s bid for General Motors’ (GM.UL: ) Hummer unit earlier this year. That deal however was later withdrawn after failing to obtain clearance from Chinese regulators.

But increasingly, cashed-up Chinese companies are looking to build their global presence and move out the traditional resource sector for acquisitions.

With $42.6 billion spent abroad in 2009, Chinese companies rank third among the biggest foreign M&A investor nations after the United States and France — a sharp rise from 12th position over the last decade.

($1=.7485 Euro)

(Additional reporting by Shengnan Zhang, Benjamin Lim and Denny Thomas; Editing by Ken Wills and Anshuman Daga)

Xinmao lines up Minsheng Bank to support Draka