Hong Kong-listed software and IT services firm Chinasoft International (00354.HK) has breached a shareholding covenant on its US$100 million three-year term loan, after Chinese private equity firm Hony Capital sold its entire stake in the company, two sources familiar with the situation said.
Banks have held talks with the company’s management, and are now asking for a partial prepayment of the loan in return for waiving the requirement to cure the breach, the sources said.
The term loan, completed in October 2013, has a shareholder covenant requiring Hony, one of China’s leading private equity firms, to retain a minimum 12 percent stake in Chinasoft, one of the sources said.
Hony sold its entire holding to take advantage of the current stock market boom which has pushed Hong Kong’s benchmark Hang Seng Index to a seven-year high. Heavy capital inflows from China have driven the surge, after Beijing allowed mutual funds to buy Hong Kong stocks through a link with Shanghai’s stock market, according to media reports.
At the time the US$100 million loan was allocated, Hony held 18.75 percent of Chinasoft, as Debtwire reported. The firm first acquired a stake of 11.76 percent in Chinasoft for HK$267 million (US$34.4 million), according to a company announcement in June 7, 2011.
Hony sold 335 million shares, or 18 percent of Chinasoft, for HK$1.32 billion, according to an exchange filing on April 23.
Hony declined to comment on a question from Debtwire on why it did not request a waiver from the company’s lenders before it sold its stake. Chinasoft did not respond to phone calls and emails seeking its comments.
Sole bookrunner Mega International Commercial Bank accounted for US$13 million of the 2013 loan. The other participating banks were Chang Hwa Commercial Bank, First Commercial Bank, Taishin International Bank, Bank of East Asia, with US$10 million each; Deutsche Bank, Hua Nan Commercial Bank, Taiwan Business Bank, Taiwan Cooperative Bank with US$8 million each; Bank of Kaohsiung, Far Eastern International Bank and Land Bank of Taiwan with US$5 million each.
Mega International initially launched a US$80 million loan for the borrower with a greenshoe portion of US$30 million. Deutsche was the coordinator.
The three-year loan, with an average life of 2.5 years, was structured to repay 30 percent of the principal at the end of the second year, another 30 percent in the middle of the third year, and the rest at the end of the third year.
The margin was LIBOR+ 295 basis points and three ticket levels were offered: US$20 million and above, US$10 million to US$19 million and US$5 million to US$9 million in exchange for participation fees of 60bps, 50bps and 30bps, respectively.
Founded in 2000, CSI is a software and IT services provider, including consulting, outsourcing and talent training. It serves clients in government, manufacturing, finance, telecommunications, high-tech, transportation, energy and other sectors, according to its website.
Chinasoft’s 2014 revenue rose 38.2 percent from the previous year to 4.43 billion yuan (US$715 million). Bank balances and cash were 811 million yuan, while current liabilities stood at 2.33 billion yuan.
Hony’s website still listed Chinasoft as an asset in its portfolio as of April 24.
Jou Yu and Stephen Aldred are the co-writers of this article.
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