Formosa Plastics Corporation USA earlier this week signed a two-year loan arranged by Citibank/Salomon Smith Barney. Following the closure of syndication last week, the deal raised $320 million for the borrower. The original size of the deal was $350 million. However, banks can still join in the deal within six months of the signing date, which could see the size of the deal being increased.
The borrower is the wholly-owned subsidiary of Taiwan-based Formosa Plastics, which manufactures and markets plastics materials and chemical fibre products. The average life of the loan is 1.75 years. The loan, with a lenders' put option, is extendible after two years and offers a margin of 82.5bp over Libor. All-in is 98.5bp for the underwriter level and includes management fees of 20bp.
Pricing is considered to be attractive for Formosa Plastics Corp. USA, which is a frequent visitor to the loan markets. In April 2000, the company tapped a $300 million three-year revolving loan paying a spread of 75bp over Libor and all-in of 80bp. That loan, also arranged by Citibank/SSB, however, featured a guarantee provided by the parent. In the present borrowing, the parent company is providing only a letter of undertaking for the loan and that is why the spread is higher than the previous deal.
The loan has taken longer to close than is usually required prompting some observers to remark that because the borrowing is by the US entity, there were booking office issues to contend with. However, some banks are believed to have taken longer for the credit appraisal because the borrower was due to release the latest financial results. The borrower is not listed in the US and hence financial information is not publicly available. However, recent reports in the Taiwanese media speculated the company had hired Goldman Sachs to manage its initial public offering (IPO) to be launched by the end of the year.
Delays notwithstanding, the deal achieves the rare distinction of having an offshore branch of a Mainland Chinese bank participate in a loan indirectly related to a Taiwanese company. Bank of China (Hong Kong) has joined the deal as sub-underwriter and is believed to have made a commitment higher than any other sub-underwriter.
A total of 13 banks, including Citibank/SSB and Bank of China, participated in the transaction. The other banks joining as sub-underwriters are Bank of America Asia, ICBC (Taiwan), Banca Nazionale del Lavoro, DBS Bank, Land Bank of Taiwan, OCBC Bank, Bank Sinopac, UOB Bank, ABSA Bank, Hang Seng Bank and Chiba Bank.
