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Thursday, 22 February 2018

Loan

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China National Chemical Corp (ChemChina)’s whopping US$12.7bn bridge loan played a key part in financing its takeover of Syngenta and raised the bar for event-driven financing in Asia as the largest syndicated acquisition loan on record in Asia Pacific (excluding Japan).

The recourse loan was designed to help fund ChemChina’s equity contribution to its acquisition of the Swiss seeds and pesticide company, and sat alongside a US$20bn non-recourse facility at the target level that is IFR’s EMEA loan of the year.

ChemChina’s US$43bn bid for Syngenta in March 2016 was the biggest overseas acquisition to be attempted by any Chinese firm, more than double the previous record set by oil giant CNOOC’s US$17.7bn acquisition of Canadian energy company Nexen in 2012.

After a long and nervous wait, the acquisition was completed in May 2017, bringing the financings into IFR’s review period.

The recourse loan was originally pegged at up to US$30bn during the M&A negotiations, before a slightly more manageable US$12.7bn one-year facility emerged in April. Still, that was comfortably the biggest single underwritten commitment from China Citic Bank, the sole global coordinator, and presented the Chinese lender with its biggest syndication challenge by far.

ChemChina was already highly leveraged after a flurry of acquisitions in Europe, including the 2015 purchase of tyre maker Pirelli, and the Syngenta acquisition pushed the group’s leverage to around 10 times earnings, stretching banks’ limits for the credit.

China’s four biggest lenders – Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China – chose not to participate, underlining the challenge facing Citic in a market already highly exposed to the credit.

Seven banks joined Citic in June as mandated lead arrangers and bookrunners – BNP Paribas, Credit Agricole CIB, Credit Suisse, Industrial Bank, Natixis, Shanghai Pudong Development Bank and UniCredit.

By the time the deal closed in September 2016, a total of 17 banks were on board, including Citic, sending a vote of confidence in ChemChina’s ability to term out the debt and make the acquisition a success.

The financing paid an opening margin of 200bp over Libor, based on a one-year tenor and ChemChina’s ratings of BBB/Baa2 (S&P/Moody’s) or higher – higher than opening margins of around 100bp on the non-recourse Syngenta loan.

Rapid consolidation in the agrochemical and seed industry raised global antitrust concerns, but ChemChina cleared all regulatory hurdles, including challenging provisions in the US and the European Union.

ChemChina has since refinanced part of the loan – and paid down part of the Syngenta facility – with other equity, bonds and longer-term loans.

To see the digital version of this report, please click here

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