After watching China’s equity markets fall off a cliff in the New Year, dragging European equity markets into bear territory, Chinese corporates have grabbed their wallets and gone to the January sales, picking up cheap deals in Europe. Even better, the purchases come with juicy loan financings to do.
On Monday ChemChina (China National Chemical Corporation) said it would buy a 12% chunk of Swiss commodity trader Mercuria, just days after the Chinese state-owned-firm was also reported to be close to a deal to buy Swiss pesticide and seeds maker Syngenta for as much as $43.8 billion.
In addition, last week ChemChina announced that it had paid €925m for German materials firm KraussMaffei from PE firm Onex.
UniCredit and Natixis scooped mandates to arrange the juicy loan for the Chinese energy firm. ChemChina will pay for KraussMaffei using a term loan, a revolving credit facility and a guarantee facility of undisclosed sizes. UniCredit is global coordinator, mandated lead arranger and bookrunner and Natixis is mandated lead arranger and bookrunner for the loans.
ChemChina described the KraussMaffei acquisition as the largest investment in Germany by a Chinese company.
China’s biggest food company COFCO has also been dipping into the pot, in 2014 the state-owned firm paid $2bn for a controlling stake in Dutch trader Nidera and is reported to be planning to buy the remaining stake in Nidera which it does not already own.
Europe’s loans bankers are grateful for the deal flow after European syndicated loan volume fell 7% year on year in 2015, down to $1.15tn.
Global syndicated loan revenue was $13.6bn, down 22% from the year before and the lowest annual total since 2010, according to Dealogic. EMEA syndicated loan revenue was $3.9bn in 2015.
European banks already benefitted from ChemChina’s acquisitions in Europe. Last year 13 banks lapped up the hearty €6.8bn loan for ChemChina’s acquisition of Italy’s Pirelli.
China Construction Bank, Intesa Sanpaolo, JP Morgan and UniCredit underwrote ChemChina’s €6.8bn deal to buy Pirelli. Mandated lead arrangers were BBVA, BNP Paribas, Barclays, Commerzbank, Deutsche Bank, Mitsubishi UFJ Financial Group, Mizuho, Natixis, SG Corporate & Investment Banking and UniCredit.
The Pirelli bridge loan had a mouth-watering margin of 275bp for the first 12 months, 325bp for the last six months and 375bp beyond 18 months. If it's taken out in the bond market, that means another bite at the same cherry for some of the banks involved.
In a European loan market where margins for investment grade corporate financing have been sat at rock-bottom lows for many long months, the prospect of high margin, high volume financings to feed Chinese acquisitions could not be more welcome.
While China’s impact on equity markets may be catastrophic, the impact of China’s M&A appetite for European firms will remain strong — a reason for Europe's debt bankers to cheer, despite the miserable markets.