The financing for Asia’s biggest private equity buyout raised the bar for the region’s leveraged finance industry, illustrating the kind of scale and complexity that the Asian loan market can offer to cash-rich financial sponsors.
A consortium of Chinese investors wrapped up a US$4.108bn loan for the acquisition of GLP in January 2018, marking the end of a two-year campaign to take control of the Singapore-listed logistics provider. Chinese PE firms Hopu Investment and Hillhouse Capital, and SMG Eastern – an entity under the full control of GLP CEO Ming Zhi Mei – sealed the LBO loan in a relatively short time-frame, but the financing still provided a tough test for lenders given the structural complexities.
GLP’s appeal as Asia’s biggest warehouse operator was not in doubt. However, the unique nature of its business, with operations in multiple jurisdictions, and its existing debt of around US$4bn posed significant hurdles.
GLP is not just a developer and owner-operator of logistics facilities, but also one of the largest real estate fund managers in the world. When the US$4.10bn loan emerged in mid-2017 via equal underwriters and M&A advisers Citigroup and Goldman Sachs, GLP had a global portfolio comprising 700m square feet of logistics facilities in China, Japan, Brazil and the US, among others.
The buyout loan for Nesta Investment Holdings, the bidco, was subordinated to the existing debt, which resided at several operating entities in different geographies with some of the facilities carrying change-of-control clauses.
The leads had to structure the financing taking into account the Ebitda and the attributable value of the properties GLP owned directly as well as via its real estate funds.
The combined debt at the bidco and the operating company represented leverage of around 13 times. For the year ended March 31 2017, GLP’s Ebitda had totalled about US$489m and it had investment properties valued at US$14.70bn.
The financing structure also had to ensure that GLP’s investment-grade ratings – Baa2/BBB+ (Moody’s/Fitch) at the time the deal was launched – were not impacted. Conviction that the company would remain a solid Triple B credit was reflected in the pricing, security and covenant package on the loan.
The pricing was extremely tight for a leveraged deal, with the top-level blended all-in at 135.4bp based on a blended interest margin of 124.06bp over Libor and blended tenor of 3.095 years. The loan did not carry any security or flex on the leverage covenants.
The deal picked up momentum, with seven other lenders joining the arranger group well before launch into syndication in September. It attracted another six banks in general syndication before closing in December, with the final group representing a mix of lenders from the US, China, Japan, Europe and Taiwan.