Bank of China contributes to €10.8 billion EUR syndicated loan to Mittal Steel to finance its acquisition of Arcelor S.A.

Project narrative

On May 23, 2006, a syndicate of 13 banks, including Bank of China (BOC), signed a €10.8 billion EUR syndicated loan agreement with Mittal Steel Company N.V. — a Netherlands-incorporated steel company based in Rotterdam, Netherlands, but managed from London, the United Kingdom, and majority owned by the family of India's Lakshmi Mittal — to finance its acquisition of Arcelor S.A. (a Luxembourg-incorporated and headquartered steel producer, the world's largest in terms of turnover) for €26.9 billion EUR ($34.4 billion USD). This loan consisted of four tranches: a €2.66 billion EUR tranche with a maturity period of one year with a one-year extension option and an interest rate based a floating rate plus a margin of 57.5 basis points (bps); a €2.66 billion EUR tranche with a maturity period of three years and an interest rate based on a floating rate plus a margin of 65 bps; a €2.66 billion EUR tranche with a maturity period of five years and an interest rate based on a floating rate plus a margin of 70 bps; and a €2.800 billion EUR with a maturity period of six months (0.5) years with a one-year extension option. Mittal Steel mandated the bookrunners for a €8 billion EUR loan on January 30, 2006, then increased the loan to €10.8 billion EUR on May 23, 2006 after raising its offer for Arcelor, before signing in June 2006. The proceeds were to be used by the borrower to finance the acquisition of Arcelor and related transaction costs and to refinance a $3.5 billion USD bridge loan from Citigroup signed on October 19, 2005 for the acquisition. In addition to BOC, the following lenders contributed to the loan syndicate: Citigroup, Goldman Sachs Group Inc., Société Générale S.A. (SocGen), Credit Suisse AG, Commerzbank AG, HSBC Bank PLC, Bank Austria, Bank of Tokyo Mitsubishi-UFJ, Ltd. (BTMU), Caja Madrid, Lloyds TSB Bank plc, Coöperatieve Rabobank U.A., and Royal Bank of Scotland (RBS). Citigroup, Goldman Sachs, and SocGen served as bookrunners. Credit Suisse, Commerzbank, and HSBC served as mandated lead arrangers. Caja Madrid, Lloyds TSB, and RBS joined in May 2006. In January 2006, Mittal Steel launched a hostile takeover bid for Arcelor S.A. for €18.6 billion EUR ($22.7 billion USD). Arcelor sought to raise legal hurdles across various jurisdictions, began a stock buyback effort of ~20% of its outstanding shares, and found a "white knight", Russian steel magnate Alexey Mordashov, who was willing to take a major stake in Arcelor through an asset-swap with steelmaker OAO Severstal. Goldman Sachs, working on behalf of Mittal Steel, convinced 20% of Arcelor's shareholders to sign a letter to stop Mordashov's investment and derail the buyback effort. Then, in June 2006, Arcelor agreed to be acquired by Mittal Steel for €26.9 billion EUR, 49% over the initial bid and nearly double Arcelor’s pre-bid price. On June 26, 2006, Mittal Steel used €3 billion EUR to repay the $3.5 billion USD bridge loan, which was then cancelled. As of July 26, 2006, 92% of Arcelor shareholders accepting the offer. The acquisition was completed on August 1, 2006. Arcelor had been created in 2001 via the merger of three European steel entities based in Luxembourg (Arbed), Spain (Aceralia), and France (Usinor). With its acquisition by Mittal Steel, ArcelorMittal, the world's largest steel company was created. In October 2006, Mittal Steel was in the midst of finalizing a group of mandated lead arrangers for a ~€16 billion EUR syndicated refinancing facility, which was to refinance the €10.8 billion EUR loan for the takeover of Arcelor. Then, on November 30, 2006, a syndicate of lenders entered into a €17.000 billion EUR syndicated credit agreement with Mittal Steel to refinance, among others, the €10.8 billion EUR syndicated loan; in December 2006, all of the refinanced facilities were repaid and cancelled.