MSPEA in $339m take-private

CDB will underwrite the MSPEA-backed privatisation of Chinese agricultural business Yongye International from the NASDAQ, which comes almost a year after the initial bid.

The China Development Bank has heavily underwritten a consortium bid to take private NASDAQ-listed Yongye International in a deal worth $339 million, according to a disclosure from the US stock exchange. The consortium includes Morgan Stanley Private Equity Asia, Full Alliance International and company management.

The price, agreed at $6.69 per share, was increased from the consortium’s initial bid for the business in October 2012, and is a 40 percent premium over its share price at the time the preceding offer was originally disclosed last year. Abax Global Capital had previously dropped out of the consortium. 

The deal took so long to complete as the firms were sealing an attractive financing package from the Inner Mongolia unit of CDB, according to a source close to the matter. 

He explained that using a more sophisticated, international lender would have been faster, but added, “The loan

The loan package, frankly, would have been absolutely not replicable in the commercial markets. It’s not that they couldn’t [have used an international bank] but they would not have got nearly as good a package as they did from CDB.

PEI's industry source

package, frankly, would have been absolutely not replicable in the commercial markets. It’s not that they couldn’t [have used an international bank] but they would not have got nearly as good a package as they did from CDB.” 

Terms of the loan package have not been disclosed in detail, but CDB provided $211 million in debt for the privatisation, in turn “significantly increasing” the shareholdings of the consortium members, the source told Private Equity International.

MSPEA held about 12 percent of Yongye prior to the deal, having invested about $61 million in the company’s preferred shares and common stock during 2011. 

MSPEA’s deal is similar to a number that have been completed previously, where private equity firms have taken private US-listed Chinese businesses that have under-valued share prices. 

For example, in May, CITIC Capital Partners led a consortium of investors to take-private AsiaInfo-Linkage in a deal worth $890 million, PEI reported earlier. The deal was done at a 53 percent premium over the company’s 30-day trading average, an earlier company statement said. 

Private equity firms de-list these companies with a view to re-list them at higher valuations on other stock exchanges in Asia, but industry sources have voiced concerns over the high premiums firms are paying for these businesses, as well as the lack of precedence of re-listing businesses, particularly given the lackluster IPO markets in Asia at the moment.

A Chinese agricultural business is far more easily understood by investors who understand China and who speak Chinese, than by US investors. On the other hand, if you are Sina, an internet company that is very similar to Yahoo! and Google and Amazon, then it makes all the sense in the world to be listed in the
US

PEI's industry source

However, PEI’s source explained that Yongye specifically may be better placed to re-list in Asia. “Markets are good, markets are bad – at some point in time they will be reasonable [again]. The question really is, from the standpoint of investors: when it comes to understanding a business, where are you better off being listed?”

“A Chinese agricultural business is far more easily understood by investors who understand China and who speak Chinese, than by US investors. On the other hand, if you are Sina, an internet company that is very similar to Yahoo! and Google and Amazon, then it makes all the sense in the world to be listed in the US.”

Nevertheless, all firms with dry powder allocated to China are being forced to look abroad for deals as dealflow in China continues to be strained. Opportunities have emerged as US investors sour on Chinese businesses due to a number of accounting scandals. 

“There is an opportunity to find a [sizeable] company that is difficult to find in the private markets in China today. And then to get a [good] price on top of that. If these companies were private companies in China, you would never, never get this kind of valuation – it just wouldn’t happen.”