Fosun readies euro loan for Club Med buyout

The Chinese conglomerate is expected to close syndication on dual tranche euro facility to fund its Club Med buyout early March.

Fosun International, the Chinese conglomerate founded by billionaire Guo Guangchang, is tapping lenders for a euro-denominated loan to fund its acquisition of France’s Club Mediterranee (Club Med), which operates luxury resorts in the Maldives and Phuket.

Credit Agricole, Natixis and Societe Generale are arranging the loan and seeking to syndicate the facility to a group of primary lenders.

According to a source familiar with the matter, the size of the facility is still to be determined and there will be two tranches, one with limited recourse to Fosun and the other with recourse only to Club Med’s operating assets.

The facilities will have tenors of about six to seven years and a weighted average life of about four years. The three lead arrangers plan to close syndication in early March and mainland banks are expected to join.

Fosun, which is modelled on insurer Berkshire Hathaway, won a long drawn-out bidding war for Club Med on February 12, when it gained control of the company, acquiring a 92.8% stake in Club Med with other investors.

However, this came at a price. In order to outbid rival Italian investor Andrew Bonomi’s Global Resorts, Fosun was forced to raise the bidding price for the loss-making Club Med several times and its final price of €24.6 per share is about 40% higher than Club Med's stock price at the beginning of 2014.

Fosun’s offer values Club Med at €939 million and ratings agency Moody’s expects that Fosun will need to pay about €650 million to €700 million in cash for its acquisition of Fosun shares that it doesn’t already own.

In a report, Moody's analyst Kai Hu said that it would be a challenge for Fosun to achieve adequate returns to cover the high premium paid for the acquisition.

Analysts are concerned about Fosun's debt funded growth and the loss-making Club Med won't be contributing much in the way of cash flow.

"We do not expect the investments in Club Med to materially increase its recurring Ebitda and cashflow in the next one to two years,” said Lina Choi, a Moody's vice-president and senior analyst. "As such, Fosun's credit metrics will be pressured," she added.

Moody's said that Fosun’s acquisition of Club Media is credit negative but will have no immediate impact on its Ba3 rating. Founded in 1992, Fosun has grown by loading up its own balance sheet with debt. In a recent interview with FinanceAsia, the company's CEO Liang Xinjun said he is eyeing acquisitions in Europe and Japan.

The company has spent more than $8 billion in the past two years on acquisitions including a Hollywood movie studio, a Portuguese insurer and a New York tower.

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