Bright Food Group Co., the Chinese company buying wine merchants in France and cereal makers in Britain, is cutting interest costs by as much as a third as it benefits from foreign lenders eager to build better relations.
In what bankers say is the first offshore loan to a Chinese company that doesn’t carry fees, Bright Food would pay an interest margin of 230 basis points over the London interbank offered rate for the financing of about $800 million, people familiar with the matter said this month. Dollar-denominated loan margins globally have averaged 344.1 basis points this quarter, according to data compiled by Bloomberg.
Banks outside China are participating in loans with terms once considered unpalatable as they seek to do more business in the world’s second-largest economy. At a time when lending volumes elsewhere in Asia are falling as a global slowdown makes companies wary of taking on debt, cross-border acquisitions in China financed by bank loans are rising, jumping 20 percent to $100.6 billion last year, Bloomberg data show.
“Foreign banks may have the liquidity but not the relationships,” Mark Young, the Singapore-based head of emerging-market bank research at Fitch Ratings, said. “China’s an important economy so some of those lenders may be prepared to sign up for deals on more competitive terms than they normally would to establish a relationship foothold longer term.”
For Bright Food, based in Shanghai and backed by the city’s government, the loan rate would be 129 basis points, or 1.29 percentage points, less than its lowest coupon fixed-rate bond and 342 basis points below the People’s Bank of China’s one- to three-year best lending rate of 6.15 percent.
London-based HSBC Holdings Plc (HSBA), Rabobank International in Amsterdam, Credit Agricole SA of Montrouge, France, and at least two other international banks are considering participating in the financing, according to the people, who declined to be identified because the details are private.
The company’s 2 billion yuan ($314 million) of 3.99 percent one-year notes due July 2013 yield 4.026 percent, Chinabond prices show. Three-month dollar Libor was set at 0.4365 percent yesterday, according to the British Bankers’ Association.
Wang Lili, a Shanghai-based spokeswoman for Bright Food, declined to comment on details of the company’s financing plans when contacted via telephone yesterday.
“International banks are keen to build relationships with Chinese companies,” Joe Cheung, a vice president in Credit Suisse Group AG (CSGN)’s emerging-markets financing group for Asia- Pacific, said. “There are potential financing opportunities because Chinese enterprises are actively seeking overseas acquisitions, especially strategic assets.”
Cheung didn’t comment on whether or not the Swiss lender is considering the Bright Food facility. “There’s also the possibility of advisory roles and capital market mandates for banks which have good relationships with these Chinese companies,” he said.
Bright Food, which has more than 3,300 retail outlets across China and whose brands include Big White Rabbit candy and Aquarius drinking water, would use the proceeds from the loan to help finance its purchase of a stake in Weetabix Ltd. The company, which also operates tea, dairy and rice farms, agreed to buy the 60 percent stake from private equity firm Lion Capital LLP in May.
The deal values the maker of Ready Brek and Alpen cereals at about 1.2 billion pounds ($1.9 billion), according to a May 3 statement. Bright Food lost out on a stake in French yogurt maker Yoplait last year and was outbid by Wilmar International Ltd. for CSR Ltd.’s sugar unit in 2010.
Foreign bank interest in China is being driven in part by a drop in loan volumes across the rest of Asia. The lack of deals makes banks more willing to consider any transactions that emerge, handing borrowers a stronger bargaining position.
Syndicated loans in the Asia-Pacific region outside of Japan plunged 37 percent to $181.5 billion this year from the similar period of 2011, Bloomberg data show.
Loan volumes fell as banks’ wholesale cost of funding increases and companies, conscious of Europe’s spiraling debt crisis and how it might affect global growth, postpone refinancing.
“There are only a few high-profile deals in the loan market right now, and most them are tightly priced,” Cheung said. “So when an unusual structure comes to a market, whether it’s asset-backed, receivables-backed, acquisition-related or bridge, investors will give the opportunity serious consideration.”
Alibaba Group Holding Ltd. borrowed $4 billion from a syndicate of international banks including Zurich-based Credit Suisse, Citigroup Inc. (C) in New York and Barclays Plc of London in June. Founder and Chairman Jack Ma said he wants to eventually sell part of Alibaba Group in an initial public offering. That deal, which according to Ma may still be a few years off, could be the largest stock market debut in Chinese internet history.
Cnooc Ltd. (883), China’s largest offshore oil and natural-gas explorer, is seeking about $5 billion in offshore financing from foreign banks to back its acquisition of Canada’s Nexen Inc., two people familiar with the matter said Aug. 1. Banks expect Cnooc to pay about 150 basis points or less for the bridge facility, three people familiar with the matter said Aug. 14.
Five non-Chinese banks agreed to a margin of 220 basis points in June for a loan for a unit of state-controlled Citic Group Corp., Bloomberg data show.
The average interest margin for U.S. dollar loans signed by companies in Asia rose to 294.8 basis points more than Libor in the second quarter, from 259.04 basis points the first three- months of 2012, the data show.
Bright Food’s revenue rose 22 percent in 2011 to 75.8 billion yuan, and net income climbed 16 percent to 1.4 billion yuan, Bloomberg data show. The company plans to boost sales outside China to as much as 30 percent of revenue in five years from 5 percent, Chairman Wang Zongnan said in a July 2011 interview.
The company has shifted its focus to buying international brands and believes making cross-border acquisitions is “a very effective way” to enhance Chinese companies’ global competitiveness, Chairman Wang said in a June 30 interview.
Bright Food also mandated HSBC, Edinburgh-based Royal Bank of Scotland Group Plc (RBS) and Credit Suisse as advisers to help it get a credit rating, other people familiar with the matter said Aug. 8. “We are open to all kinds of different financing possibilities,” spokeswoman Wang Lili said at the time. “Seeking a rating and issuing a bond is one of them.”
While some of the banks considering the Weetabix acquisition loan are prepared not to be paid fees, others, rather than walk away from the facility, are negotiating with Bright Food for a 230 basis-point so-called all-in rate inclusive of a margin, plus a nominal fee, the people familiar with the matter said.
Bright Food is asking for minimum commitments of $20 million from international banks and a significant portion of the loan may be funded by Chinese lenders, including China Development Bank Corp., the people said.
Of the seven lenders involved in a Bright Food’s loan to acquire a stake in Australia’s Manassen Foods last year, only one was a Chinese bank, people familiar with the matter said at the time. Fees paid for that facility weren’t disclosed.