China's Yantai Wanhua pursues BorsodChem

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BorsodChem's Kazincbarcika PVC plant

China's largest Methylene Diphenyl DiIsocyanate manufacturer, Yantai Wanhua, is in talks with Permira, the private equity group which owns Hungary's main PVC manufacturer, BorsodChem.

According to news service plasteurope.com, it has bought up the company's mezzanine debt to the tune of E200m.

An earlier report in portfolio.hu suggested it was not intent on a hostile takeover.

"Yantai Wanhua plans long-term in BC, aiming to become a strategic investor in the troubled Kazincbarcika-based (northeast Hungary) firm.

Yantai Wanhua is a market leader on its home turf on the MDI market and is the fifth largest in its global league behind BASF, Bayer, Hunstamn and Dwo Chemical.

It has three production bases with 2,000 employees. In 2008, it posted revenues of EUR 814 m with its profit exceeding EUR 170 m. The company's market capitalisation is around EUR 3 billion.

Napi said Yantai Wanhua's management has sat to the negotiating table with the senior leadership of Permira, BorsodChem's majority owner, discussing how they could enter BC as a strategic investor and how they could take part in the reorganisation of the company.

State bailout seen

Hungary's state-owned development bank MFB said at the end of July that it was in talks to bailout debt-ridden BorsodChem, owned by London-based buyout shop Permira that bought BC for EUR 1.6 bn in 2006.

While no details were brought to light, people familiar with the situation said the loan is in the region of EUR 100 million and is needed to complete a new chemicals plant.

The lenders include Royal Bank of Scotland PLC, Unicredit SpA and Lehman Brothers International Holdings Inc., people familiar with the matter previously told Dow Jones.

Permira has been in talks with the company's lenders and the Hungarian government for some time and is expected to inject around EUR 80-90 m of new capital into the Hungarian firm.

As part of the deal, mezzanine lenders are asked to swap EUR 200 m loans for equity, people familiar with the situation told Dow Jones at end-July.

The Hostiles

In mid-August, Büchele announced that uncertainties around BC could be traced back to an Asian investor who, according to available information, has bought a significant part of BorsodChem's mezzanine loans with the involvement of investment banks.

The Chairman-CEO noted the investor failed to inform BorsodChem in writing of its role therefore he sees “hostiles intentions" in the move, saying that “if interests were mutual, there would be no need to involve investment banks."

Büchele told local newswire MTI that BC disposes of cutting-edge technology and it has always strived to become one of the leading isocyanate producers of Europe. If this technology goes to Asia, Hungary would not only lose a production unit, but the chance of further developments, and ongoing investments would be halted. This could weaken the company's position in Europe.

The surfacing of a new investor could put in jeopardy the subsidies already agreed on, as well as the agreements about to be reached, Büchele added."