China's Luoyang Bearing Acquired by Yongcheng Coal

Troubled Luoyang Bearing Group Corp. (China) has agreed to be acquired by the state-owned Yongcheng Coal & Electricity Group Co. Ltd. (China), ending speculation about Luoyang's future. The agreement was signed December 18, 2004. Founded in 1954, Luoyang Bearing had been the symbol of China's bearing industry. A key part of the first Five Year Plan and one of the country's most important manufacturers, Luoyang Bearing was once China's largest ball bearing manufacturer. The company manufactures LYC brand bearings. However, in recent years, Luoyang has been plagued by systemic operating and management problems. The company's troubles were only made worse by this year's dramatic rises in raw material costs. Ongoing efforts by the Chinese government to rein in the economy by cracking down on too-easy credit and poorly run businesses made it impossible for Luoyang to continue operating on its own. From a peak of 27,000 employees, Luoyang is now down to 10,000 employees and production at a fraction of its former peak of 70 million sets. Although state-owned, Yongcheng Coal & Power Group is considered Henan Province's best-run and most profitable business. With several anthracite coal mining and railway operations, it is considered a model for other businesses. Yongcheng is setting up a new entity, Luoyang LYC Bearing Co. Ltd., to house the bearing manufacturing operations. The new company is essentially the old Luoyang Bearing Corp., operating from its existing facilities. No announcement was made as to how the new business would be managed. Luoyang LYC has a founding registered capital of RMB 400 million. Of that, Yongcheng is investing RMB 250 million cash to get the business back on its feet, and receives 62.5% ownership. Luoyang Bearing Group is contributing only its business assets, valued at RMB 150 million, for 37.5% ownership. A number of small operating businesses within Luoyang do not fit the new operation and will be sold off or closed. The RMB 150 million valuation put on Luoyang Bearing's assets is only a fraction of the RMB 3.3 billion valuation it had once claimed. One Chinese bearing executive told eBearing, "Do not mistake this for a real business transaction that it is not. This is the Chinese government, instructing a profitable state-run business to take over an unrelated but troubled state-run business. By this way, Luoyang Bearing continues to operate."