Debt-laden Fosun upsizes loan to $800m

Fosun International increased the size of its three-year loan by $300 million to $800 million in response to robust interest from banks, a source familiar with the matter said on Thursday.

Appetite for the Chinese conglomerate founded by billionaire Guo Guangchang was strong as lenders bought into group's business strategy and shrugged off its high debt levels.

"It’s a very acquisitive company and there has been much fervour from the Asian banks that have anchored the deal," the source said. "It’s a global credit now, with businesses in the US, Europe and Australia."

The margin on the loan is about 275 basis points over Libor and there was a 60bp upfront fee, and a 5bp early bird fee. For banks that joined at the top level, the loan offered an all-in pricing of about 300bp.

The mandated lead arrangers on the loan included ANZ, Bank of East Asia, ICBC Asia, Hang Seng, Maybank, Natixis, and Wing Lung Bank.

Hong Kong-listed Fosun, which models itself on Warren Buffett's Berkshire Hathaway group, had Rmb46 billion ($7.4 billion) of short-term debt as of end 2014.

Its industrial operations accounted for 65% of consolidated assets and 87% of consolidated revenue at the end of 2014. S&P expects the leverage of Fosun's industrial operations to remain high over the next 12 months, with the ratio of debt to Ebitda staying above five times

The proceeds of the company's new loan will go towards refinancing some of its debt as it falls due.

Debt-fuelled spree

Fosun has been on a debt-fuelled acquisition spree and most recently, on May 3, agreed to buy US-based insurance company Ironshore for about $1.8 billion -- its largest acquisition since 2011.

Analysts expect Ironshore to improve the quality of Fosun's investment portfolio, given that it is a well-run insurance company with a growing market presence in US and European specialty insurance. They also expect Fosun to rely less on debt for its Ironshore acquisition than for past deals.

"Our expectation is a more balanced funding approach rather than [to] heavily rely on debt to fund the deal," Kai Hu, an analyst at Moody's, told FinanceAsia. "If they fund this deal with the majority by debt, we will reassess the situation."

Fosun could potentially raise funds through asset disposals or through equity to fund Ironshore. "The company has lots of short-term investment in equity markets and indicated they would monetise their investments and try to fund this deal," Ellen Li, an analyst at S&P, told FinanceAsia. S&P affirmed its BB rating on Fosun, following the Ironshore acquisition.

A number of its subsidiaries are also listed and have access to capital markets, including Shanghai Fosun Pharmaceutical and Shangahi Yuyuan Tourist Mart, which have announced plans to raise equity of Rmb5 billion and Rmb10 billion, respectively.

The Ironshore deal adds to what has been a busy few months for Fosun. The Chinese conglomerate partnered with private equity firm TPG to buy circus troupe Cirque du Soleil in April and also won a long, drawn out bidding war in February for France’s Club Mediterranee (Club Med), which operates luxury resorts in the Maldives and Phuket, amongst other places.