ChemChina $12.7bn loan is a watershed for Chinese banks
The successful distribution of a jumbo loan for ChemChina’s acquisition of Syngenta shows that Chinese banks have learned quickly from past mistakes. And as the trend of Chinese companies snapping up prized assets overseas intensifies, they will only get better at arranging large, complex deals.
Distributing a $12.7bn Asian bridge to fund ChemChina’s takeover of Swiss seedmaker Syngenta was never going to be easy, not least because of its size.
Not only did lead China Citic Bank International have to muster a huge amount of liquidity from the market, it also had to face lenders’ apprehensions about ChemChina’s high leverage and its own relative inexperience in executing such a big deal.
It didn’t help matters that the transaction came at a time when complaints against Chinese banks seemed to be growing, especially after the dismal performance of a Bank of China-led loan for an ill-fated attempt at acquiring the lighting division of Philips.
But Citic proved that with the right transaction and the right strategy, Chinese banks can pull off jumbo financings. For starters, unlike the Philips borrowing, the loan had a short, 12 month tenor. It was also helped by the fact that banks had already done their homework on the ChemChina-Syngenta tie-up when they were approached to take part in the European syndication.
Citic also organised meetings in Beijing that brought Chinese and foreign lenders to the same table. At the time, market sources commended Citic for its efforts in trying to bridge the gap between the concerns of Chinese and foreign banks.
Chinese banks are often accused by their rivals of mispricing risk and taking advantage of their low-cost deposit base to undercut the competition. But this view is biased. The truth is that any large, local bank would enjoy an edge over outsiders when it comes to knowing companies operating on its home turf.
Of course mainland lenders have longstanding relationships with businesses like ChemChina, which are now globally recognised for the scale and ambition of their acquisitions. As a result the banks’ level of information on Chinese borrowers is far more comprehensive than any foreign bank, so naturally, mainland lenders are more comfortable with the credit and the risk.
This familiarity also means that any problems are likely to hit the radar of local banks much earlier and be better understood, allowing them to intervene early and find a solution. This is no different from the advantages a European lender might enjoy in its home market.
As China’s sphere of influence grows, so will the prominence of its major banks, which have a mandate to support state-owned enterprises in their strategic overseas acquisitions.
Mainland banks have been making efforts to incorporate international market practices, including hiring Chinese-speaking bankers from global investment banks. This new crop of practitioners experienced in the western and Chinese ways of doing things will lead to more convergence between the two.
It’s time to discard the negativity and distrust for Chinese bank-led deals and adopt a more open-minded and discerning approach. A spirit of collaboration as opposed to one of criticism would benefit foreign banks and the loan market.