Caterpillar's China scandal draws attention to ex-PE asset IMM

Zhengzhou Siwei Mechanical & Electrical Manufacturing, a mine-safety equipment producer, became a unit of Caterpillar last June following the US firm's acquisition of ERA Mining Machinery for $700 million. Caterpillar announced earlier this month that it would take a $580 million write-down because of discrepancies found in Siwei's accounts.

The similarities between IMM and Siwei - the companies followed a common development path, marked out by the same people - and the questions from analysts that resulted have prompted Joy Global CEO's to speak out to reassure investors. He told Bloomberg that he was happy with the IMM management team and the integration process, adding that the company sees a lot of upside in the business.

Joy Global - the world's largest manufacturer of underground mining machinery - bought The Jordan Company's 41% stake in Hong Kong-listed IMM for HK$4.5 billion ($584.6 million) in December 2011. Coupled with shares purchased during the offer period, Joy held approximately 69% of the Chinese company and subsequently took full ownership through a HK$3.4 billion tender offer.

IMM was originally a state-owned enterprise that produced underground long wall coal mining equipment and provided related services. A Jordan affiliate initially invested in the company in 2006 and then took it public in February 2010, raising HK$2.5 billion. Jordan owned 91% of IMM ahead of the IPO and used the event to reduce its holding to 54.6%. In October 2010, the PE firm sold down 13.46% of its stake for a reported $151 million.

Siwei went public in Hong Kong the same year as IMM and two executives played a role in the creation of both companies, effectively consolidating state assets under private ownership. John Li (also known as Rubo Li) and Emory Williams' involvement with Siwei has already been documented by The Wall Street Journal. Li is described as "well-connected with local governments and mines" while Williams is a US businessman with a background in construction materials.

Both invested in IMM, holding 6.3% and 1.35%, respectively, at the time of the IPO. The Jordan Company awarded the pair minority interests for their support in putting together the assets that became IMM in 2006. According to the company's IPO prospectus, Li and Williams identified Jiamusi Machinery and Jixi Machinery as potential acquisition targets and then participated in the purchase negotiations.

Williams resigned as a director of IMM in December 2009 while Li remained a director until 2011.

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• Topics
• Greater China
• Buyouts
• Exits
• Industrials
• Commodities
• China
• The Jordan Company
• Exit