Few companies embody the highs and lows of turbo-charged modern finance better than Ferretti. Once the luxury yachtmaker made a mint for private equity. Now a state-backed Chinese industrial conglomerate is buying it for at most a fifth of its peak value.

Ferretti's financial journey launched in 1998. Previously family-owned, the firm became a small, wildly successful investment for a forerunner of Permira, the European buyout house. Turnover quadrupled in three years, and the backers made more than 50 times their money back in a 2000 flotation. That valued Ferretti at about 400 million euros including debt.

Two years later, luxury stocks were languishing. Another Permira fund bought Ferretti back, in an 833-million-euro deal. Ferretti gobbled up rivals, and sales soared yet higher, aided by the rise of the super-rich. Permira sold a majority to rival Candover in 2006. This secondary buyout valued Ferretti at 1.7 billion euros. Talk followed of a 3 billion euro flotation.

Then things went adrift. As the financial crisis set in, customers no longer felt filthy rich. High costs, plunging orders, and 1.1 billion euros of debt proved toxic for Ferretti. Candover lost control in 2009, hastening its own downfall.

Enter Shandong Heavy Industry Group-Weichai Group, which is taking control in a second restructuring. The lengthily named Chinese firm and Ferretti aren't obvious bedfellows, but there is some logic. Shandong Heavy already makes marine engines. China is minting millionaires daily, and the only way is up for its tiddling yacht market.

The Chinese are paying 178 million euros for 75 percent of Ferretti's equity and providing 116 million euros of new term debt, which implies an overall enterprise value of about 350 million euros. Major lenders RBS and Strategic Value Partners, a hedge fund, get the remaining equity for 25 million euros. Previous debt, totalling about 690 million euros, will be repaid at about 32 cents on the dollar, a person familiar with the matter says.

Ferretti isn't the first distressed brand to find itself in Chinese hands. But the boatmaker popped up in many of the financial fads of the last decade. So a cashed-up Chinese state-owned enterprise seems a particularly fitting berth.

CONTEXT NEWS

-- On January 10, China's Shandong Heavy Industry Group-Weichai Group said it had agreed to take majority control of Ferretti, the Italian luxury yacht maker. Chairman Tan Xuguang said Shandong Heavy would seek a separate listing for Ferretti in Hong Kong in three to five years. Ferretti's key management and production will remain in Italy.

-- The luxury yacht industry grew from 4.2 billion euros in 2000 to 9.7 billion euros in 2008, according to Bain & Co research prepared for Altagamma, the Italian trade association for the luxury business. It then fell sharply in the next two years, contracting to about 6 billion euros in 2010.

-- Shandong Heavy makes commercial vehicles, machinery construction, power systems and auto parts, and is China's largest bulldozer maker. It controls four groups with stock listings in Hong Kong, Shanghai or Shenzhen: Weichai Power (2338.HK: Quote, Profile, Research, Stock Buzz) (000338.SZ: Quote, Profile, Research, Stock Buzz), Weichai Heavy Machinery 000880.SZ, Yaxing Motor Coach Company (600213.SS: Quote, Profile, Research, Stock Buzz) and Shantui Construction Machinery (000680.SZ: Quote, Profile, Research, Stock Buzz).

-- Ferretti's EBITDA peaked at 165 million euros in the year ending August 30, 2008, according to Milano Finanza, an Italian newspaper, before plunging to 18 million euros the following year. Citing preliminary figures, the paper says EBITDA for the year to end-Aug 2011 will be about 45 million euros.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

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