under A$80m for 2018.
The interest margin is 250bp
over six-month BBSY and top-
level upfront fees on offer are a
mere 25bp.
“The margin and fees are
not comparable with other
loans, especially after taking
into account the gearing,” said
one senior leveraged finance
banker in Singapore. “In the
US, term loan B financings pay
250bp in margins for leverage
multiples of 3.0x–3.5x. So, this
should be paying around 400bp
in pricing.”
In Australia, the most
recent LBO financing was a
A$135m (US$104m) six-year
unitranche loan in November
to support private equity firm
TPG Capital’s acquisition of a
majority stake in clinical trials
company Novotech. The loan
carried leverage of 5.5x and
paid a margin in the low 500s
over BBSY.
Despite the aggressive
structure and tight pricing,
sources expect the presence
of big-name investors in the
consortium will help CMB
attract banks to the loan.
CMB has a close relationship
with New Hope Group, China’s
largest agriculture and animal
husbandry company, which is
driving the acquisition and is
said to have a stake of 20%–30%
in the consortium. Sovereign
wealth funds China Investment
Corp and Temasek Holdings,
together with Chinese PE firm
Hosen Capital, control another
50%–60% combined. Genbridge
Capital, Sichuan Haidilao
Catering, Pavilion Capital and
Hong Kong’s Keywise Capital
own the remainder.
Quadrant Private Equity
bought RPFC, formerly known
as VIP Petfoods (Australia), in
June 2015, investing A$410m
alongside the founding Quinn
family and the company’s
management.
Quadrant funded that
buyout with a A$240mfive-year amortising loan,
carrying leverage of 4.8x.
ANZ and Deutsche Bank
were the mandated leads and
underwriters on the loan, which
attracted Commonwealth Bank
of Australia, HSBC and Westpac.
It is not clear if any or all of
these banks are still lenders to
RPFC. However, bankers say
some will be keen to renew
their exposure to what is
considered a stable, cashflow-
generating asset. RPFC’s
existing management will
continue to run the company,
which is another comfort factor
for lenders.
The acquisition will provide
RPFC a platform to expand
internationally, particularly
into China, where the pet
and related food industry
has tremendous potential for
growth.TEST OF CREDENTIALS
CMB has been sole lead on
bigger loans, but it has mainlyfocused on syndicating Chinese
borrowings to other PRC
lenders.
A high-profile example was
a US$3.4bn-equivalent loan in
July 2016, which backed the
US$9.3bn buyout of US-listed
Chinese security software
maker Qihoo 360 Technology.
CMB was sole underwriter
on the loan, which carried a
leverage multiple of up to 6x
and attracted five other Chinese
banks in syndication.
That loan underscored the
strong liquidity and appetite
among mainland banks for
debt backing the delisting of
Chinese companies overseas,
shutting out international
banks that had hitherto
dominated this segment of
financing.
CMB’s sole mandate on
RPFC’s LBO loan builds on that
trend, though the dominance of
domestic and Western banks in
Australian leveraged finance is
far from being under threat. For daily news stories
visit http://www.ifrasia.comA fund manager at a Chinese
house who holds some LGFV
dollar bonds in his portfolio
said the incident shows that
local governments still have
strong willingness to bail out
LGFVs, which should provide
some comfort to investors.
OFFSHORE PUSH
Market participants said the
incident is not likely to slow
the supply of LGFV offshore
bonds, as onshore yields are
rising significantly.
In the onshore market,
KUNMING COMMUNICATIONS INDUSTRY ,
a state-owned enterprise in
Yunnan, postponed an offering
of Rmb900m five-year bonds,
initially due to launch on
January 16.
YUNNAN CONSTRUCTION &
INVESTMENT HOLDING GROUP ,
another issuer from the
Yunnan province, dropped
an offering of Rmb1.5bn
perpetual notes initially
planned to launch on January
- Meanwhile, yields on other
onshore LGFV bonds with
tenors of less than 365 days
shot up to over 5% last week.
BOCI’s Wang expects more
LGFVs to explore opportunities
to issue bonds offshore so as to
expand their funding channels.
“Chinese corporations,
including LGFVs, have learnt
that they cannot rely on the
onshore market only as the
market is heavily affected by
government policy. Having
a funding channel in the
offshore market will give them
more flexibility,” Wang said.
Moody’s believes the direct
debt quotas of regional
and local governments are
insufficient to fund their
massive infrastructure
spending needs and the gap
will need to be filled with
higher borrowings for local
SOEs, especially LGFVs.
Currently, more than 1,
LGFVs have issued bonds in the
onshore market, making up
around 15% of the outstanding
there. However, only a few
of them have issued bonds in
the offshore market, meaning
they could add substantially to
supply if they opted to do so,
said bankers and analysts.
A Hong Kong-basedsyndicate banker at a Chinese
brokerage said his house had
eight LGFVs offshore bonds
in the pipeline and expected
LGFV dollar bond supply to
increase this year after a slow
2017, since NDRC had relaxed
and speeded up approvals after
last October’s Communist
Party Congress.
Although Chinese authorities
have tried to detach LGFVs from
public-sector balance sheets to
contain risks associated with
growing contingent liabilities,
many remain of high strategic
importance to their local
governments and still carry
public-sector mandates, he
pointed out.
“Investors, especially
those onshore investors,
believe that government’s
implicit guarantee for LGFVs
is still there, although it is
weakening,” he said.
Since the first issue
from Beijing Infrastructure
Investment in June 2014,
LGFVs have become a new
segment in the Asian dollar
bond market with a market
size of US$26bn as of end-2017,according to a report from UBS
Wealth Management.DEFAULT FEARS
Moody’s Chung said local
governments were no longer
able to use fiscal resources to
directly bail out LGFVs since
the launch of several regulatory
guidelines since 2014. The
central government aims to
separate the direct debt and
contingent liabilities of local
governments, and establish
more restrictions for local
government to support the local
SOEs, especially LGFVs.
However, in practice, Chung
said local governments are using
other legitimate ways, such as
capital or asset injections, or
M&As, to provide funds to LGFVs
to prevent defaults, in particular
on publicly traded debt and to
settle incidents reported by the
media.
“It is hard to predict whether
or not there will be any LGFV
bond defaults this year. Overall,
I don’t see risk of widespread
default as the authorities are
expected to step in to prevent
any systemic default risk.”