Chinese construction machinery manufacturer XCMG has joined other bidders to buy Doosan Co Ltd’s hydraulic components business unit Doosan Corporation Mottrol.

XCMG was among the shortlisted bidders for Doosan Corporation Mottrol, which is to be offloaded by South Korea’s Doosan group in an effort to address its cash needs, sources said on July 3.

The offer came after XCMG’s earlier attempt to acquire a South Korean heavy machinery manufacturer and is in line with efforts by the company to expand its excavating equipment manufacturing business after starting producing its XE7000E hydraulic excavator in 2018. Doosan Corporation Mottrol produces hydraulic components that are largely used for manufacturing excavators.

XCMG, founded in 1943, is ranked fourth in the world’s top 50 construction equipment manufacturers after Caterpillar, Komatsu and John Deere, according to the Yellow Table 2020 released by British publisher KHL Group in May.

Some industry watchers are skeptical about whether XCMG – even if it outbids other suitors – will win the bidding for Doosan Corporation Mottrol because a foreign investor may not be allowed to acquire the target’s defense business.

The purchase of Doosan Corporation Mottrol is subject to approval from the South Korean Ministry of Trade, Industry and Energy, based on local regulations as the company was designated as a defense contractor. This could mean greater uncertainty over the deal completion, making XCMG less preferable for the seller than other bidders, industry watchers said.

The Kumho Tire deal in 2018 is an example. At the time, a group of creditors led by Korea Development Bank sold the company to Chinese firm Doublestar, while its defense business was sold separately to local tire manufacturer Hung-A Co Ltd.

Another factor that could have an impact on the seller’s final decision is how much room for negotiation each bidder will allow on terms for a long-term supply agreement between Doosan Corporation Mottrol and Doosan Infracore. The construction equipment manufacturer, which is the target’s key customer, will also be offloaded as part of the group’s restructuring plan. The shortlisted bidders are expected to include their proposed supply terms in their final offers to address the target’s revenue uncertainty resulting from a possible sale of Doosan Infracore.

The final round of bidding is scheduled for July 13 with Credit Suisse advising on the sale. (Reporting by Ar-rum Rho)