MergerMarket
China state-owned entity Chemchina is planning to shortly meet with PRC banks to request commitments towards a USD 12.5bn China CITIC Bank-led loan that forms part of the financing for its CHF 41.79bn (USD 43bn) acquisition of Swiss agrochemicals firm Syngenta [VTX: SYNN], a source briefed on the situation said.
Bank commitments for the loan were supposedly due at the end of April, but that deadline has been moved several times now, the source said.
While Chemchina’s offer of CHF 465 per share plus a CHF 5 special dividend is fully financed and has committed financing, the SOE has said that all or parts of its existing credit facilities may be replaced by equity funds from the company itself and one or several third parties.
Chinese lenders China Construction Bank, Export-Import Bank of China, Agricultural Bank of China, and Industrial and Commercial Bank of China have themselves hesitated to help underwrite the USD 12.5bn CITIC loan for reasons that are still unclear, it was said. This has triggered some uncertainty among the international banks that were set to participate as well.
A banker following the deal has heard of “chopping and changing” amongst the Chinese lenders. The banker speculated that the four banks could be posturing because of CITIC’s relative lack of experience in financing deals of this magnitude. It could be a loss of face for the four major Chinese banks to line up behind CITIC, which they might see as a “second tier” lender.
Eight banks are expected to take some USD 1.5bn each of the USD 12.5bn loan, it was said. CITIC has committed to provide USD 3bn in case commitments don’t reach the desired level.
It is unclear how successful it would be to put pressure on the banks, especially in an environment where China’s bad debts are increasingly coming to light, the first source said. Ratings firm Moody’s revised its outlook for China’s credit rating to negative from stable in March this year, saying the government’s finances may come under pressure if it shoulders the liabilities of distressed state-owned enterprises. The agency doubled-down on its assessment in April, noting that the government hasn’t addressed structural challenges coming from high corporate debt levels.
Neither the source nor the banker thought the struggle to get commitments would break the deal, which is seen as being endorsed by the Chinese government.
The deal is strategic enough to China that the government could put pressure on lenders to support it, one of the sources said. The source believed the Chinese banks would eventually capitulate and support the deal if they receive pressure from the central government. The acquisition of Syngenta by a centrally-controlled SOE is a strategic deal for China, which is seeking food security and wants to modernise its agriculture industry.
As reported, Chemchina is putting together USD 50bn in total financing for a 100% takeover of Syngenta. CITIC is coordinating a USD 12.5bn loan backed by Chemchina’s assets, while HSBC has put together USD 12.5bn against Syngenta assets. The remaining USD 25bn will be equity mostly from Chinese government vehicles.
The parties expect the deal to close by the end of this year, following receipt of all regulatory approvals. The transaction is subject to antitrust clearance from the EC, HSR (US), CADE (Brazil), and CCI (India) and also needs a green light from the Committee of Foreign Investment in the US (CFIUS). It has already received approval from China’s antitrust authority (MOFCOM).
The Swiss public tender offer opened on 23 March for an initial period of 40 trading days. It may be extended once or several times for subsequent periods of up to 40 trading days pending satisfaction of all offer conditions, including all regulatory approvals.
Chemchina declined to comment. CITIC did not respond to a request for comment.