Carlyle has teamed up with Chinese entrepreneur Huo Zhenxiang to buy 75% of Tongyi Lubricants from Royal Dutch Shell, the companies said in a joint statement on Friday.
After the deal completes Carlyle will have a controlling stake in the lubricants maker which supplies car dealerships according to a spokeswoman at the private equity firm.
The US private equity firm is looking to invest in companies that sell to the burgeoning ranks of Chinese consumers who can afford private car ownership. Since overtaking the US in 2009, China has established itself as the world's largest car market.
Although China's economic slowdown has weighed on auto sales, there are no signs that China’s pole position is under threat. Sales of passenger and commercial vehicles in China totaled 23.5 million units in 2014, up 7% from a year earlier, according to the China Association of Automobile Manufacturers.
While passenger vehicle sales remain buoyant as high earners continue to seek greater mobility and better living standards analysts estimate commercial vehicle sales will fall by 15% to 20% in 2015 due to slowing economic activity and government measures, such as stricter emission standards, which have increased associated costs.
“The lubricants industry is a growing market in China due to increasing auto penetration. Tongyi is well positioned to tap the market’s potentials with its strong brand, extensive nationwide sales network and experienced team,” said Herman Chang, managing director of Carlyle’s Asia buyout team.
Carlyle’s equity investment for the transaction will come from its fund Carlyle Asia Partners IV. The US private equity firm has invested $6.3 billion of equity in more than 80 transactions in China as of June 30.
Tongyi, a joint venture between Shell and Huo’s Group, the Beijing-headquartered conglomerate owned by Huo Zhenxiang, is a Chinese lubricants supplier with blending plants in Beijing, Xianyang of Shaanxi province and Wuxi of Jiangsu province.
Shell acquired its 75% stake from Huo’s Group in 2006 and said it has helped build it into the number one international lubricants supplier in China by share of supply. Tongyi’s profits have grown in recent years, the companies said.
Huo Zhenxiang, chairman of Huo’s Group, said: “Since I created this lubricant brand in 1993, with everybody’s great effort, Tongyi has become the No. 1 domestic private brand and company in China’s lubricants industry.”
Shell is now focusing on optimising its lubricants portfolio in China.
Subject to regulatory approvals, the companies expect the deal to complete by the end of 2015 or in early 2016.