The following article was published on Debtwire on May 28, 2015
Bank of China is sounding lenders in Asia and Europe to join an underwritten seven-year term loan and revolving credit facility of around USD 1.95bn to back the acquisition of a majority of Royal Philips’ LED components and automotive lighting business, Lumileds, by China-based investment fund GO Scale Capital, five sources familiar with the deal said.
The loan, which uses a structure similar to a Term Loan B, comprises a USD 1.6bn term loan, of which BOC will hold up to as much as USD 800m, and a USD 350m revolving credit, which BOC is expected to hold and not syndicate, the sources said.
The Chinese bank is tapping the loan markets in Europe, and offering a margin of LIBOR+ 330bps and a front-end fee of 100bps for a take of USD 100m, giving an all-in of around L+ 364bps, two of the sources familiar said.
The seven-year loan repays in quarterly instalments of 0.25% of the outstanding principal, giving an average life close to seven years, one of the sources familiar added.
Philips announced that it had agreed a deal to sell an 80.1% stake in the combined LED components and automotive lighting businesses to a consortium led by GO Scale Capital, with Philips retaining the remaining 19.9%, on March 31. The deal values the business at an enterprise value of USD 3.3bn, according to the statement.
The Lumileds loan is the latest in a series of deals where Chinese banks have underwritten financings to back overseas acquisitions by Chinese buyers, or to back going private deals for overseas listed Chinese companies. The deals have been dubbed “patriotic lending” by Western bankers in Asia, who are losing out on lending opportunities.
Morgan Stanley originally had a mandate to arrange a Term Loan B financing for the buyout of Lumileds, two of the sources familiar, and a source close to the situation said. Earlier this month, BofA Merrill Lynch was bumped off a financing that would have backed the USD 1.9bn buyout of US listed OmiVision Technologies by Hua Capital Management, CITIC Capital and Goldstone Investment, as Debtwire reported.
Bank of China and China Merchants Bank are providing a financing package of around USD 800m for the OmniVision deal, split between a term loan of above USD 500m and a bridge facility. The decision to go with Chinese banks for the buyout was based on pricing, and a hard commitment from BOC to underwrite the deal, Debtwire reported at the time.
The OmniVision deal followed the buyout of US-listed online games developer, Perfect World, which was backed by a USD 900m loan from China Merchants Bank and Wing Lung Bank, as reported.
The OmniVision buyout was agreed with a consortium of well-known Chinese sponsors with a track record of doing overseas buyouts, including blue-chip firm CITIC Capital, but GO Scale Capital is a little known investment fund, sponsored by two venture capital firms, GSR Ventures and Oak Investment Partners. The consortium partners for the Lumileds buyout are Asia Pacific Resource Development, Nanchung Industrial Group, and GSR Capital, said the the March statement announcing the investment.
The Lumileds acquisition is expected to tap into the Chinese government’s demand for environmentally friendly technology, including increased use of electric cars. GO Scale has previously invested in Boston-Power, a maker of electric vehicle technologies. Boston-Power secured USD 290m in local government financial support to expand its two facilities in Liyang and Tianjin in China, according to a company statement on December 22, 2014.
The company announced on May 4 that it had an exclusive agreement with Shandong Xindayang Electric Vehicle Co to supply battery packs for its ZD low speed electric vehicles (LSEV). Boston-Power will build an electric vehicle battery pack assembly plant in northwest China in Lanzhou which will be able to supply 40,000 packs per year for Xindayang’s Eco-EV business, the May statement said.
by Stephen Aldred