Top seeds
Standing out from the crowd of standard investment-grade M&A bridge loans, ChemChina’s landmark US$20bn non-recourse loan backing its acquisition of Swiss agrochemical and seeds company Syngenta provided a model for large-scale outbound Chinese acquisition financing.
The US$43bn purchase was of strategic importance to China, which is looking to increase food security for its growing population, while taking part in the consolidation of the global agrochemical and seed industry.
“The deal itself was the largest ever outbound acquisition by a Chinese company; at the time the largest acquisition in the agrochemicals sector; and the largest public takeover in Switzerland,” said Rachel Watson, head of financing and advisory products at HSBC.
To fund the takeover, ChemChina raised US$20bn of non-recourse loans in March 2016 at the Syngenta/BidCo level, as well as an initial US$30bn equity bridge at ChemChina.
ChemChina had trodden this path before, putting in place a €6.8bn non-recourse loan to back its acquisition of Italian tyremaker Pirelli in 2015. But the sheer size of the Syngenta financing was on a different scale altogether.
“This was a large deal with a difference,” said Chris Tuffey, head of investment grade capital markets at Credit Suisse. “Here we had a huge Chinese player making an outbound M&A trade using non-recourse financing that would allow the company to maintain a robust credit structure and rating.”
The non-recourse loan was fully underwritten by HSBC – in one of the largest-ever sole underwritings – before the takeover bid was announced in February 2016.
The loans provided certainty of funds required under Swiss takeover rules and the necessary offshore dollars to allow the overseas acquisition to take place.
The financing included a US$5bn bridge to equity and US$10bn bridge to bond, while Syngenta’s existing revolving credit facilities and term loans were backstopped with two US$2.5bn facilities.
Given the size of the acquisition and the amount of debt being raised, the deal was structured to cater for all possible ratings outcomes, with pricing incentivising an investment-grade rating and early repayment.
When the acquisition closed, Syngenta received a BBB– credit rating from S&P.
The structure was unusual for an investment-grade acquisition but is becoming typical for Chinese overseas acquisitions.
Global coordinator HSBC, alongside joint bookrunners and mandated lead arrangers Credit Suisse, Rabobank and UniCredit, launched the loan into syndication in late February 2016. Syndication was a truly global affair targeted at existing lenders to Syngenta and ChemChina in Europe and Asia.
The financing closed quickly in March 2016 with a total of 16 banks committing to the deal, which was well supported by a mixture of lenders that fitted the global profile of the takeover.
Although the financing closed last year, the underlying acquisition was completed in May 2017, making the loan eligible for an IFR award this year.
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