In what appears to be an annual feature in the loan markets, bankers have launched into general syndication a US$100 million deal for Cofco Capital Corporation, the US financing vehicle for China National Cereals, Oils & Foodstuffs Import & Export Corporation (Cofco). ING, Rabobank and Standard Chartered are the coordinating arrangers for the three-year letter of credit (L/C) facility. Cofco HK Corporation is the guarantor to the facility.
Proceeds from the L/C facility will back a US commercial paper programme. Syndication is slated for close on August 28. Banks participating in the facility receive participation fees of 42bp (all-in of 60bp) for commitments of $10 million or above, while banks entering the transaction on the lower level with commitments of $5-$10 million receive 36bp (all-in of 58bp).
The deal is a repeat of the L/C-backed US CP financing that the borrower has been tapping every year for the last four years. Cofco Capital tapped a similar L/C facility last year in August arranged by Rabobank. That one-year facility paid a commission of 50bp and raised $120 million. The deal was oversubscribed from $100 million.
Pricing for the current deal is a far cry from what the borrower has paid in previous deals. According to figures provided by Dealogic, Cofco Capital has paid 70bp (1998), 125bp (1999) and 65bp (2000) to raise $200 million every year through the one-year deals. Some market observers believe that it encountered difficulties raising the funds in July 1999 reflecting the sentiment for China credits in the aftermath of GITIC's downfall. This is why its pricing for the 1999 deal was almost double that of the previous year. At the same time Cofco Capital was believed to be looking at a three-year deal but had to settle for a one-year facility because of poor market sentiment.
In that context the present deal is a comeback for the borrower as it will be able to raise funds not only at one-third of the 1999 financing, but also be able to lock in cheaper funding over a longer tenor. The lower pricing on the L/C facility would also enable tighter pricing on the CP that will be issued.
Meanwhile, the parent, Cofco, is looking to expand into Australia and Chile through its Hong Kong-listed subsidiary Cofco International Ltd. The state-owned food importer and exporter is also a bottler for Coca-Cola in the Mainland and is the country's biggest grain trader. Cofco also has interests in beverages, edible oils, hotels, packaging, real estate, transportation, and warehousing.
