) --

Harbin Electric


is seeking to become the first U.S.-traded Chinese stock to go back into a private structure through a management-led buyout, but its investment partner,

Baring Private Equity Asia Group

is pulling back from its commitment.

Harbin shares are down 11.3% in Tuesday afternoon trading.

Harbin Electric CEO Tianfu Yang and Baring previously announced a deal to take Harbin private at a price of $24 per share, with Goldman Sachs serving as the financial adviser to the Harbin CEO.

On Tuesday morning, Harbin Electric put out a press release stating that Baring's participation in the deal will now be limited to a right, not an obligation, to provide up to 10% of equity and/or debt financing.

The Harbin CEO stated his intention to pursue the $24 per Harbin share private buyout offer and seek alternative sources of financing.

Harbin shares were recently trading at $16.45 in the pre-market.

The Harbin Electric private buyout proposal garnered attention for being the first of its kind involving a U.S.-traded Chinese stock.

>>Harbin Electric LBO: a Sign of Things to Come

However, the company has also attracted the wrong kind of attention for a U.S.-traded China stock, including allegations that its books aren't in order and affiliations with an auditor that has been implicated in fraud allegations against other Chinese companies.

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Last week, when Chinese company

Rino International


had a fraud case brought against it, Harbin shares sank due to is use of the same auditing firm, Frazer Frost.

Ever since the Harbin Electric-Baring plan was announced, Harbin shares trading has indicated that merger arbitrage investors betting against the deal being completed.

-- Written by Eric Rosenbaum from New York.


>>Harbin Electric LBO: a Sign of Things to Come

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