Wanhua gives up BorsodChem takeover battle

Hungary's BorsodChem has reached an agreement with China's Wanhua, allowing it a future as a minority shareholder but not to control the company.

According to portfolio.hu, it seems Wanhua has given up its intention to squeeze out owner Permira and become a majority owner of the Hungarian company.

"After three days of intensive negotiations, the management and the majority shareholders of Hungarian chemicals firm BorsodChem signed an agreement in principle with representatives of Wanhua Industrial, a China based holding, which controls Yantai Wanhua.

The parties also reached an agreement on BorsodChem’s debt restructuring plan, which enjoys a strong support by the senior lenders and the Hungarian government.

"This is a very important step for the financial restructuring of BorsodChem and the implementation of our growth plan", stated Wolfgang Büchele, CEO of BorsodChem after the negotiations.

"This result is good for BorsodChem, its customers, suppliers and the employees in particular", Büchele added. "But there is still a long way to go. Several questions remain unresolved for the time being and will be addressed only at a later stage. The delegates agreed on further negotiations in due course to discuss the open questions in a friendly and constructive manner."

The negotiations, which took place in Budapest, were attended by Wolfgang Büchele, representatives of the shareholders Permira and Vienna Capital Partners and Wanhua Industrial, including Chairman Jiansheng Ding.

Last week, in a meeting with senior lenders of BorsodChem the banks expressed their strong support of the current management of BorsodChem and their expectations that the current management continues to operate BorsodChem during the implementation of the growth plan.

The Permira Funds and Vienna Capital Partners (VCP) should remain majority shareholders and continue to exercise operational control, the banks stated."

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."