Citigroup and Chinatrust mandated for LBO finance

The $1.5 billion leveraged buyout financing for MBK PartnersÆ purchase of China Network Systems will be one of the larger private-equity financings ever completed in Asia.

Chinatrust Commercial Bank and Citigroup have been awarded the mandate to arrange the leveraged buyout financing for MBK Partners' purchase of China Network Systems (CNS). Sources close to the deal have stated that Chinatrust will act as the security agent, with Citigroup acting as facility agent.

The deal will be worth approximately NT$50 billion ($1.5 billion) and will be financed via a combination of debt and equity. The debt portion is expected to consist of two tranches, a senior tranche and a subordinated tranche.

As yet, the size of the debt portion has not been finalised, but sources predict that it will be close to a 65/35 split, with the debt component taking out the majority of the purchase. Effectively, that means that any debt component could be worth upwards of $900 million to $1 billion. The sizes of the respective tranches has not yet been established either. The financing is expected to be launched towards the end of the month.

It was initially reported that MBK was buying a 60% stake, but it has been confirmed that MBK is actually buying close to 100% of CNS. However, in order to conform with government regulations permitting only a 60% foreign ownership of domestic cable-television networks, MBK has solicited a number of local partners to provide a portion of the equity component of the financing.

Having won the bid earlier this week, the auction for CNS was hotly contested with a great deal of private equity interest. Others bidding for the company included Newbridge Capital, Macquarie, KKR, Goldman Sachs private equity and CVC Asia Pacific. CVC is majority held by Citigroup. When finalised, the transaction could represent one of the larger private-equity buyouts ever completed in Asia.

Taiwan's communications sector has been very active recently. In July, The Carlyle Group completed a $515.5 million investment in two Eastern Multimedia Group companies.

MBK Partners is a Korea-based private equity fund founded by Michael Kim, the high-profile figure who was previously head of Carlyle in Asia. However, KC Kung, another former partner of KimÆs from Carlyle, is running the deal for MBK.

CNS is 80% owned by Taiwan's Koo family with the balance held by News Corp (Star Group). It is TaiwanÆs largest cable company measured in terms of revenues and subscribers. Carlyle had earlier invested in Taiwan Broadband Communications.

Taiwan has a strong cable and satellite television market with one of the highest penetration rates in the region. Recently, the government announced that it will soon relax existing regulations that inhibit the ability of cable television companies to expand services and increase revenues.

CNS is being advised by Morgan Stanley and MBK by Merrill Lynch.

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