Pushing boundaries
In September, private equity giant Blackstone Group completed an US$817.9m loan backing its buyout of IT outsourcing services provider Mphasis. The deal was India’s largest syndicated leveraged financing and redrew the boundaries for leveraged finance in the country.
Thirty-four lenders participated in the loan, belying the gargantuan challenges involved as the LBO navigated changing market conditions, including another wave of the coronavirus pandemic in India during the second quarter.
Blackstone, which was to emerge as the eventual buyer, initially put up for sale its 56% stake in Mphasis in late November 2020 when there was no certainty on the level of liquidity available to lenders. That month had just seen a US$600m loan backing Baring Private Equity Asia’s take-private of IT provider Hexaware Technologies become India’s largest LBO financing.
Funding challenges for the Mphasis LBO included the debt size required along with higher leverage multiples than previously transacted in India. Moreover, the winning bidder for the 56% stake was also required to make a mandatory open offer for another 26% according to India's takeover code. This followed a significant rise in the share price of the target, which had already seen its market capitalisation surge to around US$4bn in the weeks leading up to early March when Blackstone decided to postpone the sale process due to differences over valuations.
On April 26 Blackstone announced an offer to acquire an additional 26% stake in Mphasis for Rs82.62bn (US$1.1bn). The offer went hand in hand with Blackstone’s plan to transfer a 55.31% stake for a maximum of Rs152.1bn to two of its funds from Marble II, a Blackstone vehicle that had owned a controlling stake in Mphasis since September 2016.
Lenders backing bidders during the sale process were still keen to support Blackstone for an overall debt financing requirement of around US$1.1bn – almost double the US$600m loan for Hexaware’s LBO. The leverage multiple on the loan backing Blackstone’s LBO was around five times, which represented uncharted territory for banks participating in Indian deals that typically carry gearing no greater than 4.5 times.
Thirteen banks were formally mandated on the LBO loan for Mphasis in early July. Tiered underwriting commitments from the top-heavy arranger group provided the foundation for the sell-down in general syndication, which attracted 21 banks.
Among the 13 leads, Standard Chartered and UBS underwrote US$140m each, while Barclays, Citigroup, Deutsche Bank and Nomura committed US$100m. BNP Paribas, DBS Bank, HSBC, Investec, Morgan Stanley, MUFG and Sumitomo Mitsui Banking Corp underwrote US$60m each.
Around US$670m was raised in general syndication from a mix of Australian, South Korean, Taiwanese, European and Middle Eastern banks, some of which were first-time lenders to Indian LBOs.
Blackstone ended up acquiring a smaller additional stake in Mphasis through the open offer, and the loan was reduced to US$817.9m.
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