BorsodChem to be acquired by Wanhua Industrial

After several months of bargaining, the Chinese Wanhua Industrial Group and the Permira-Vienna Capital Partners (VCP) duo agreed on the future of Hungarian chemical company BorsodChem (BC).

It was announced that BC will be acquired by the Chinese company in 24 months. Nevertheless, the agreement is not so simple and it has many unspecified non-public details. The transaction can be summarised as follows:

Wanhua will forego the mezzanine loan it controls (and purchased well below face value in the market) and will provide a senior loan of EUR 140 million to BC with an unspecified annual interest rate. In return, it will get a significant (unspecified) minority stake and call option to purchase all outstanding shares of Permira and VCP at an unspecified price.

Wanhua will supply an initial funding of approximate EUR 30 million to BC. Upon completion of the restructuring process, Wanhua will provide BC with additional financing of EUR 110 million. The company will use the new funds, which will be provided on a senior basis, to complete the construction of the new TDI plant and the new nitric acid plant as well as for general corporate purposes.

Wolfgang Büchele, Chairman-CEO of BorsodChem, said that the first part of the restructuring process will be completed and Wanhua may acquire a minority share in the company by end-March. At the same time, Wanhua will get a call option for the outstanding shares of Permira/VCP.

As soon as the restructuring deal is completed, Wanhua may exercise its call option and acquire Permira/VCP’s entire stake in BorsodChem within the next 24 months.

All parties agreed that the details of the transaction are under non-disclosure. The agreement and the related funding are all subject to senior and mezzanine lenders’ approval.

The parties repeatedly stressed that the agreement was based on a consensus. Wolfgang Büchele said that the new BC plants may be commissioned by the end of the first quarter of 2011. By the time Wanhua becomes controlling owner, BC will be able to implement a new strategy and act as the European beachhead of the Chinese company.

Jason Ding, Chairman-CEO of Wanhua Industrial Group, said that the deal is highly favourable for all stakeholders of BC. He expects the company to get over its difficulties and re-enter its growth path soon.

When Wanhua becomes full owner, it plans to continue working with the current management and wants to rely on VCP's knowledge of the local market and leverage its old relationship with BC. This may mean that VCP will somehow re-enter the ownership structure of BC.

The Chinese manager said that his company is committed to contribute its technology and operating expertise to promote the growth of BC and maintain Hungarian jobs.

Christian Neuss of Permira stressed that the past months convinced them of Wanhua’s commitment to the future of BorsodChem.

The parties did not reveal the size of the minority stake to be transferred to Wanhua in the initial phase but called it ”significant”.

The parties said that Wanhua will fully convert its mezzanine loans to shares. The aforementioned EUR 140 million will be channelled to the company as fresh funds provided as a loan to BC. The parties did not reveal the pricing of this loan but said that it will governed by standard market rates.

Currently, BC has outstanding net loans slightly exceeding EUR 1 billion. This amount will be reduced by the value of converted mezzanine loans but it will be increased by the new loan of EUR 140 million to be provided by Wanhua. All in all, the company will continue to have a high leverage ratio.