Banks are gearing themselves up to bid for the mandate to arrange a US dollar umbrella refinancing facility for China Unicom. This will be the first visit to the offshore syndicated loan market by China's second largest cellular operator.
Market rumours suggest the deal will be a minimum of $700 million with the borrower keen on raising as much as $1 billion if the appetite exists. No firm details have been finalised, but it is believed the structure will follow a three, five and seven tranche strategy.
This is one of the biggest facilities to come out of China this year although few market observers say the size will be a problem. Bankers looking at the deal anticipate that the borrower will award a mandate to two or three banks, which will be expected to underwrite $200 million to $250 million apiece.
Analysts point out that although these tickets look large it is likely that some of the big Chinese banks will be willing to commit at this level. It is thought that many of the domestic houses have existing credit lines to the borrower and would be willing to extend their takes.
Dealogic figures show that the Chinese syndicated loan market has been relatively quiet so far this year with just 11 deals completed in the first half. The majority of these transactions are not even 'pure' Chinese credits, with a lot of the funds being raised by foreign owned entities for their parent company's investment in China.
This being the case loan syndicators have struggled to find financings to draw comparisons with. Some point to one of the few US dollar transactions to be syndicated for a Chinese credit this year - the $150 million seven year loan for Shanghai Mart.
This deal has struggled in the market and remains in syndication despite being launched almost three months ago. Other bankers claim this is not a fair comparison as the deal is not of the same credit quality, has been weighed down by the depressed property market in Shanghai and has had to contend with the lingering effects of the SARs epidemic.
Many bankers are basing their estimates of the likely pricing to Hong Kong dollar deals. Talk in the market suggests the facility will be priced in line with the current HK$4.7 billion ($600 million) fundraising for Hongkong Land that pays an all-in of 48.5bp for seven year money.
Market observers have said that this may be too tight for seven years, although investors may be willing to extend funds at this level for three years. They believe the deal will be successful at a combined all-in of around 60bp over the three tranches.
Even at this price, some of the European and US banks may well be wary of joining the fundraising. Many of these houses are already heavily committed towards the telco sector and credit approval may not be granted.
This is unlikely to effect the outcome of the syndication as the deal is expected to be completed with a top heavy syndicate. Analysts feel that the a handful of banks will take large chunks and syndicate a small portion out to other investors wishing to book Chinese assets.
No date has been set for a mandate to be awarded but it is expected shortly.
