China National Chemicals Import & Export Corporation (Sinochem) upsized its loan deal last week following strong demand from banks in the syndication stage. The loan, originally launched for $150 million by ABN AMRO, the mandated bank, was upsized to $170 million. The facility was over-subscribed by 20% with commitments totalling $180 million.
Bank of China (New York), Bank of Communications (New York) and Standard Chartered joined ABN AMRO on the top-level as co-ordinating arrangers with commitments of $50 million, $30 million and $17 million respectively. ABN AMRO also committed $17 million to the facility, which is being raised by a US entity, Sinochem American Capital Corporation and guaranteed by Sinochem Beijing.
Commerz East Asia and NordLB (Singapore) participated in the facility as arrangers with commitments of $13.75 million each, while Banca di Roma (Shanghai) and Banca Nazionale del Lavoro pitched in with $9.5 million and $7.5 million respectively as co-arrangers. Bank of Tokyo Mitsubishi (BoTM), Rabobank and KBC Bank made up the commitments as senior managers for the remainder of the facility. Signing of the loan agreement is scheduled for the end of the month.
The abundant liquidity among banks in Hong Kong is the driving force behind the huge demand for the deal. Moreover, Sinochem is a frequent borrower and is a familiar name with banks wanting exposure to Mainland Chinese assets. And because it is a regular visitor to the loan markets, the financial covenants for the new deal are not different from those in the past for the borrower. The three main financial covenants that apply to the guarantor during the three-year term of the loan are:-
- The minimum consolidated tangible net worth should be $1 billion
- Ratio of consolidated total net borrowings to consolidated tangible net worth should not exceed 2.25
- Interest coverage ratio should always exceed 1.75
While Sinochem is not in the same league as China Petroleum and Chemical Corporation (Sinopec) or China National Petroleum Corporation (CNPC), banks are still comfortable lending to it and hence approvals are granted faster. Whereas in the case of relative newcomers to the market like Xinao Gas, it takes longer to get the deal done, although the size, at $30 million, is a fifth of Sinochem's upsized deal.
However, some observers feel that Sinochem's present deal has taken longer than usual to be completed because the borrower is a US entity and also because of withholding tax issues. Sinochem is believed to have intended to raise as much as $250 million through a combined loan through its US and UK entities. However, withholding tax issues and double tax treaty considerations would have surfaced as well had Sinochem decided to use its UK entity.
Market participants believe deals get completed faster when borrowers prefer to use companies registered in Hong Kong, Cayman Islands or British Virgin Islands. This is demonstrated in Sinochem's $150 million loan that was raised through its Hong Kong entity, Sinochem Hong Kong (Holdings), last year. The three-year term loan offered all-in of 87bp to sub-underwriters.
The deal was huge success and was 100% over-subscribed. In view of the over-subscription the deal was closed at the sub-underwriting stage. ABN AMRO was the mandated co-ordinating arranger and eleven other banks participated in the deal.
Some observers feel that comparing the two deals in terms of speed of execution is like comparing apples with oranges. They also argue that most lenders are pretty comfortable with documentation and tax issues when lending to US-registered offices of Asian borrowers as this has been the norm.