BEIJING / JINAN - Shandong Heavy Industry Group Co Ltd, a State-owned machinery maker, signed a deal on Tuesday to purchase a 75 percent stake in Ferretti Group, one of the top builders of luxury yachts in the world.

Shandong Heavy Industry, which mainly makes construction and agricultural machinery, will pay 178 million euros ($227.8 million) for the controlling stake. In addition, Ferretti will receive 196 million euros in loans, the company said.

The stake will be directly owned by Weichai Holding Group Co Ltd, which is the largest wholly owned subsidiary of Shandong Heavy Industry.

The deal must still be approved by an Italian court and will be completed in three to six months, said Tan Xuguang, president of Shandong Heavy Industry and president of Weichai.

Ferretti is a debt-laden yacht maker based in Italy. It owns nine yacht brands, including Pershing, Riva and Ferretti Yachts. The deal will see the yacht maker's debts reduced from 685 million euros to 116 million euros.

"We will search for an opportunity to list this yacht manufacturer in the future," Tan said.

In the West, the market for yachts has become saturated, giving Chinese companies more opportunities to enter the industry through making purchases.

The global yacht market, meanwhile, has been in decline since 2008, when the world financial crisis led to consolidation in the industry. In contrast, the number of yachts imported by China increased by 129.64 percent from 2009 to 2010, according to a report released last month by the China Cruise and Yacht Industry Association.

During the same period, Ferretti's gross profit decreased to 510 million euros from 770 million euros and its costs exceeded 310 million euros. The luxury yacht maker has run into debt troubles.

Ferretti is not the only Western yacht maker that is searching for capital in China.

As early as November 2009, another Italian luxury yacht maker, Dalla Pieta Yacht, was purchased by Zhejiang Wantong Aluminum Industrial Co Ltd, based in Zhejiang province.

"The trend of buying foreign yacht brands will continue," said Zheng Weihang, secretary general of the China Cruise and Yacht Industry Association.

Zheng said some foreign manufacturers asked him recently to suggest Chinese companies that might want to cooperate or even purchase their stakes.

After signing contracts, Chinese manufacturers still have a long way to go, Zheng said.

"Chinese manufacturers need to learn from their collaborators by moving production to China, rather than just supplying money and markets to them," he said.

Ferretti's chief management team, headquarters and production bases will be retained in Italy, said Norberto Ferretti, chairman of Ferretti Group. Shandong Heavy Industry's statement said the group also plans to establish a research center and supply chain in China.

Shandong Heavy Industry will supply inexpensive and high-quality parts to Ferretti's production base in Europe, helping to boost Ferretti's profits, according to the statement.

Even so, the fact that a Chinese company will be the controlling shareholder in Ferretti and the yacht maker's use of Chinese parts will detract from its status as a luxury brand, experts said.

Many luxury buyers think Chinese manufacturing is not reliable and they may avoid buying the yachts if they know the controlling shareholder is a Chinese company, said Ouyang Kun, chief executive officer of the World Luxury Association's China office.

China Daily