July 30, 2018 / 2:41 PM / 9 months ago

KKR targets record Taiwan LBO

* Loans: Goldman Sachs underwrites US$1bn LCY loan in KKR’s first Taiwanese buyout

By Evelynn Lin

HONG KONG, July 30 (TRLPC) - KKR is to borrow around US$1bn to support its leveraged buyout of Taipei-listed specialty chemicals producer LCY Chemical, braving a challenging regulatory environment that has curbed private equity dealmaking to date.

The NT$47.8bn (US$1.56bn) buyout of LCY Chemical is set to be the largest private equity-backed acquisition in Taiwan. KKR is heading a consortium of investors, including employees and family members.

Goldman Sachs is underwriting and arranging the debt financing, and Taiwan’s liquid banks are awaiting news of any syndication with interest, given the country’s previous lack of buyout loans.

The island’s leveraged finance industry is littered with failed deals due to lengthy review periods and scrutiny from multiple regulators.

“There has been little global private equity interest in Taiwan over the past couple of years,” a Taipei-based senior loans banker said.

KKR last attempted a buyout in Taiwan in April 2011, but local regulators blocked its US$1.6bn bid to take electronic component manufacturer Yageo private, citing insufficient protection of minority shareholder rights, among other reasons.

A NT$31.1bn debt package was syndicated in May that year and raised an oversubscription that allowed joint bookrunners and underwriters UBS and Nomura to cut pricing on the deal through a reverse flex.

Despite cutting the margin by 30bp to 220bp over the secondary CP rate, nearly 20 banks joined the financing, but Taiwanese regulators rejected the buyout after lengthy reviews in June 2011.

“Our government was not in favour of global PE firms’ buyouts of high-profile companies in the past as they were concerned about the foreign investors’ long term operational commitment and the investment’s impact on competition within the sector,” a second loan banker from a Taiwanese state-owned bank said. EXIT HURDLES Several other private equity buyouts have run into similar objections from Taiwanese regulators more recently, most notably a string of buyouts in the cable television industry.

In January, Carlyle Group finally sold a 62.4% stake in cable TV operator Eastern Broadcasting to Taiwanese investment firm Mao Te International, which is owned by local property tycoon Chang Kao-shiang, for NT$11.4bn after several attempts.

CTBC Bank is leading a NT$7bn five-year loan for Mao Te.

“It took a long time for Carlyle to get an exit as Taiwan’s regulators take a cautious approach to approving foreign investment in or exiting certain sensitive industries such as public utilities and the media sector ... which can also lead to delays in the approval process,” a third loan banker in Taipei said.

Carlyle acquired the controlling stake in EBC in 2006 from the ex-chairman of Eastern Media International for an undisclosed sum. Carlyle and Eastern Media International (21.32%) tried repeatedly to offload their stakes since mid 2015.

Before the successful sale to Mao Te, the pair’s last attempt was in June 2017, but Taiwan’s National Communications Commission blocked telecommunication services provider Taiwan Optical Platform Group’s proposed purchase of a 65% stake in EBC.

Four lenders, including sole lead CTBC Bank, were expected to complete a NT$13.5bn club loan for Taiwan Optical’s buyout.

In 2016, Dan Mintz, a producer of Hollywood films including Iron Man 3, backed out, seven months after announcing an agreement with Carlyle and Eastern Media International to buy their combined 82.2% stake in EBC in December 2015.

In February 2017, South Korean private equity firm MBK Partners also suffered a blow to its plan to sell its stake in cable TV company China Network Systems.

Taiwan’s Far EasTone Telecommunications and Morgan Stanley Private Equity Asia withdrew a joint bid for CNS, which disappointed lenders who had committed to a NT$46.8bn loan backing the buyout.

That deal also suffered a drawn-out regulatory process that lasted nearly 20 months.

Reporting by Evelynn Lin; Editing by Prakash Chakravarti and Tessa Walsh

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