Chinese online gaming company Perfect World’s management buyout will be funded by a $900 million committed loan facility arranged by China Merchants Bank and Wing Lung Bank, according to a company release.
The company is being taken private by Perfect Peony, a company owned by Perfect World founder and chairman Michael Yufeng Chi and Perfect World Merger Company, a wholly owned subsidiary of Perfect World.
Chi submitted a non-binding proposal on December 31 last year and that agreement was formalised on Sunday.
Chinese banks are keen to lend and dominate acquisition financing for mainland companies. On occasion, foreign lenders have led financing, as was the case for China National Chemical Corp's (ChemChina) takeover bid for Italian tyre group Pirelli, which was bankrolled by a €6.8 billion ($7.3 billion) bridge loan from JP Morgan, but that’s been the exception.
"A lot of Chinese banks are relationship lenders and familiar with the buyer," said one banker. "They have a lot more appetite than the foreign banks for sure," he added.
Beijing-based Hua Capital and Shanghai Pudong Science and Technology Investment (PDSTI) last year submitted a proposal to buy Nasdaq-listed OmniVision Technologies in a deal valued at $1.7 billion. The financing package is still being lined up but Chinese lenders are understood to be offering competitive terms, making it challenging for foreign banks to compete.
Given the size of the Perfect World loan, the two Chinese lenders are expected to sell down their exposure and could test the market appetite for an asset light gaming company. While syndicated loan markets in Asia are flush with liquidity, the market remains sceptical towards Chinese gaming companies with holding company structures.
Online gaming company Giant Interactive last year syndicated an $850 million buyout loan, but the loan was subsequently on offer at a discount in secondary markets. Another buyout loan for Shanda Games was scuppered last year after private equity firms Carlyle, Primavera and Fountainvest pulled out of taking the Nasdaq-listed online gaming company private for $1.9 billion. Perfect World also dropped out of the deal for Shanda.
"The China offshore structure has never been particularly popular. Six to seven years ago, it couldn’t be done, and then it started being done with limited leverage. Now it is done with more leverage and riskier structures," said a Hong Kong-based debt-financing lawyer.
Take-private deals ebb
Take-private transactions of US-listed Chinese companies are slowing as valuations pick up and low-hanging fruit is plucked. The flow of such deals is expected to continue decelerating this year.
"Markets have run up so much we are not sure if we will see a lot of take-private transactions in the market," said the banker. "Given where the markets are, I expect to see more strategic transactions," he added.
Perfect Peony is offering $4.04 in cash for each ordinary share and $20.20 in cash for each American depositary share (ADS). It previously offered $4 in cash for the ordinary shares and $20 for the ADS in December last year. Perfect World’s ADS closed at $18.52 on Friday.
