Birla Carbon’s US$900M Three-Part Financing Is IFR Asia’s Loan of the Year


Loan of the Year
IFR Asia Review of the Year 2011

By Prakash Chakravart

In volatile markets and with liquidity at a premium, Asian companies needed to pull out all the stops to complete overseas acquisitions. For its triumph over complexity and political upheaval, Birla Carbon’s US$900mn three-part financing is IFR Asia’s Loan of the Year.

When India’s Aditya Birla Group announced it had agreed to acquire US-based Columbian Chemicals for US$875mn at the end of January 2011, few would have anticipated the challenges that lay ahead.

The acquisition was completed through three different Aditya Birla Group units in Thailand, Egypt and Singapore, minimising the pressure on the parent company’s own balance sheet. The resulting US$900mn financing was also split three ways and came with a collateral and guarantor group spread across at least eight countries. Although unusually complex, the structure helped the Indian conglomerate achieve certainty of funding, maximise liquidity, achieve favourable pricing in volatile markets and retain operational flexibility via an optimal covenant package.

A non-recourse financing was already a bold strategy, considering that Double B rated Aditya Birla Group had taken a different track on its previous North American acquisition – the US$6bn buyout of Canada’s Novelis in 2007, which was funded through a mix of recourse and non-recourse debt.

To complicate proceedings further, when mandated leads ANZ, Bank of America Merrill Lynch, HSBC, RBS and Standard Chartered launched the three-tranche non-recourse financing into syndication, the Arab Spring revolution was in full swing. The civil unrest that erupted in Egypt in mid-December 2010 put an end to President Hosni Mubarak’s 30-year rule on February 11, complicating the syndication of the Egyptian tranche.

A successful syndication, however, and diversification of the company’s investor base, more than vindicated the unusual approach.

The financing was split into two US$175mn five-year tranches – one each for Alexandria Carbon Black (ACB) and Thai Carbon Black (TCB) – and a US$550mn facility at CCC (enlarged from an initial size of US$500m). The latter tranche was further split into a US$150mn five-year term loan A, a US$325mn seven-year term loan B and a US$75mn revolver.

The three facilities were independently structured and syndicated, with the only common covenants being for cross-default provisions and that the Aditya Birla Group had to maintain at least 51 per cent ownership and management control of the borrowers.

The CCC facility, offering an all-in of high 300bp over Libor, drew a strong response, luring 18 participants.

More eye-catching, however, was the outcome of the Egyptian and Thai tranches, both of which attracted unusually strong levels of participation from Asian lenders for a US dollar facility. Thai banks swarmed to the TCB financing – an impressive result, considering the deal was from an Indian sponsor.

One Thai lender also committed to the Egyptian tranche in size, pointing the appeal of the facility. Although ACB is a wholly privately owned entity, it is the only supplier of carbon black in the Middle East. TCB, meanwhile, is listed in Thailand and is well banked in the country.

Bangkok Bank took a combined exposure of US$175mn in the two facilities, while other Thai and Indian lenders took another US$60mn combined across the two tranches. The five mandated leads achieved a selldown of 80 per cent on the Egyptian and Thai tranches, and 70 per cent on the CCC facility.

The Egyptian tranche paid an all-in of 313bp over Libor, based on a 3.1-year average life, while the Thai tranche paid 261bp over on a 3.2-year average life.

The syndication on the CCC facility closed in late April, while the Egyptian and Thai loans closed in early May – straddling a timeframe during which the global crisis assumed greater proportions. The acquisition of CCC would transform the Indian conglomerate into the world’s biggest producer of carbon black, a form of pure carbon used in the production of rubber, plastics and pigments.