Shell, Huo’s Group and The Carlyle Group reach agreement on Tongyi Lubricants stake

Shell has signed an agreement to sell back its 75% stake in Tongyi Lubricants, which it bought from Huo’s Group in 2006, to Huo’s Group and The Carlyle Group. Carlyle’s equity investment for the transaction will come from Carlyle Asia Partners IV (CAP IV).  Launched in 2008, this fund invests in private high growth companies with outstanding local management and leading market position in China, India, Japan and Korea. When the fund closed in September 2014, it had USD 3.9 billion in assets. CAP IV made its first investments in May 2014 in ADT Korea, a prominent security services company, and in August 2014, in, a top operator of online and mobile-based classifieds in China.

Shell did not disclose the amount it paid for Tongyi in 2006 nor the value of the current transaction, saying these information are commercially sensitive.

The transaction, which is subject to regulatory approvals, is expected to be completed by the end of 2015 or in early 2016.

Tongyi Lubricants was a joint venture between Shell and Huo’s Group, a prominent Chinese lubricants supplier with blending plants in Beijing; Xianyang, Shaanxi province; and, Wuxi, Jiangsu province.

“Since I created this lubricant brand in 1993, with everybody’s great effort, Tongyi has become the number one domestic private brand and company in China’s lubricants industry. The lubricants industry has a bright future in China. I am very confident that our cooperation with Carlyle will be another success story in the years to come,” said  Huo Zhenxiang, chairman of Huo’s Group.

According to a Shell spokesperson, since it bought a majority stake in Tongyi, “Shell has introduced an international management system to Tongyi, and the company has improved its HSSE [Health, Safety, Security and Environment] performance significantly over the years. Both the Tongyi-branded and the Shell-branded lubricants have contributed to the growth of Shell’s lubricants business in China,” which is now the leading international lubricant supplier in the country, she said.

“By working together in partnership and cooperation, Shell and Huo’s Group have built Tongyi a strong brand with improved profitability and value proposition to customers in China,” said Xinsheng Zhang, executive chairman of Shell Companies in China.

Shell Lubricants is expanding its business and market reach in China with established local technology and commercial centers that provide customized and timely support for distributors and customers around the country. Shell’s current focus is optimizing its lubricants portfolio and strengthening the Shell lubricants brands, the company said in a statement.

According to Herman Chang, managing director of the Carlyle Asia buyout team, “Carlyle’s investments heavily focus on opportunities driven by the rising middle class in China. 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.”

Carlyle said that as a long-term investor, “Carlyle will work closely with Huo and the Tongyi team to bring the company’s success to the next level by leveraging our global resources and industry expertise.”