By PYC Bearings
©2004-2008
The government-arranged acquisition of troubled Luoyang Bearing Corp. (China, state-run) by China Aviation Industry Corp. (China, state-run) has apparently been called off.
Luoyang manufactures LYC brand bearings, and claims to be China's largest diversified bearing manufacturer.
No formal announcement has been made, but sources tell that CAIC was unable to come to terms with Luoyang, its current ownership by Yongcheng Coal, and many convoluted layers of loans and ownership left over from decades of hit-and-miss government bailout efforts. The company's finances are reportedly in such disarray that unwinding the debts and ownership claims has become nearly impossible.
Founded in 1954, Luoyang Bearing had been the symbol of China's bearing industry. A key part of the very first Five Year Plan and one of the country's most important manufacturers, Luoyang Bearing was once China's largest ball bearing manufacturer.
Luoyang Bearing has been in financial and operating trouble for a number of years. A complex web of bank loans and an odd partnership joint venture with state-owned Yongcheng Coal & Electricity Holding Group in 2004 produced Luoyang LYC Bearing Company, which holds 80% of Luoyang Bearing.
Aside from the impenetrable layers of funding, loans, joint ventures, government intervention, and other factors, Luoyang Bearing still owes banks more than 2.5 billion yuan in unsecured debt. Put in perspective, paying off the debt would consume all of the company's reported "profits" for the next 50 years. Debt is more than twice the reported annual sales.
From 2006-2007, Luoyang was pursued by an acquisition-minded Schaeffler Group reportedly offering 1.1 billion yuan, but it was doomed from the start. Not only are Luoyang's finances and operations now too obtuse for a takeover, the vehement resistance from Chinese authorities, particularly Henan province government frightened by the potential job losses from any restructuring, made it clear that foreign ownership was not to be tolerated.