ICBC (Asia) contributes $75 million USD to a $600 million USD syndicated loan to Lenovo Group to finance its acquisition of IBM's personal computer business (Linked to Record ID#107432)

Project narrative

On December 7, 2004, Lenovo Group Limited — a Hong Kong-incorporated Chinese multinational technology company and the largest computer maker in China listed on the Stock Exchange of Hong Kong — entered into an asset purchase agreement with American multinational technology company International Business Machines Corporation (IBM) in which Lenovo agreed to acquire IBM’s global desktop computer and notebook computer business (personal computer (PC)) for a consideration of $1.75 billion USD, including $650 million USD in cash funded by cash and debt, the provision of $600 million USD in Lenovo common stock (worth 18.9% of Lenovo's common stock, making it its second largest shareholder) at $2.675 HKD ($0.34 USD) to IBM, and the assumption of $500 million USD of IBM liabilities. On March 29, 2005, a syndicate of 20 banks — including the Industrial and Commercial Bank of China (Asia) Limited (ICBC (Asia)), China Development Bank Corporation (CDB) — entered into a $600 million USD ($3.900 billion HKD) syndicated facility agreement with Lenovo Group Limited to finance its acquisition of IBM's PC business. This loan carried a maturity period of five years and an interest rate of 3-month LIBOR plus a margin of 82.5 basis points (bps) and was divided into two tranches: a $500 million USD term loan tranche and a $100 million USD revolving credit tranche. The term loan carried a two year grace period, while the revolving credit tranche was to be as a bullet (i.e. in a single lump sum at maturity). Lenovo and certain of its subsidiaries issued unconditional guarantees for the term loan tranche. The facility included financial covenants mandating that Lenovo's total debt be no more than twice its net worth after March 2006. The drawdown date for the loan was April 25, 2005. ICBC (Asia) contributed $75 million USD, as captured by Record ID#107427. CDB contributed $50 million USD, as captured by Record ID#107432. In addition to ICBC (Asia) and CDB, the following lenders contributed the respective amounts to the loan syndicate: the Hong Kong Branch of BNP Paribas S.A. ($70 million USD), ABN AMRO Bank N.V. ($55 million USD), Standard Chartered Bank (Hong Kong) Limited ($55 million USD), Banca Intesa S.p.A. ($40 million USD), Banca Nazionale del Lavoro S.p.A. (BNL) ($30 million USD), Fortis Bank ($30 million USD), Mizuho Corporate Bank, Ltd. (MHCB) ($30 million USD), Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) ($20 million USD), HypoVereinsbank (HVB) ($20 million USD), Korea Exchange Bank (KEB) ($20 million USD), Wachovia Bank, N.A. ($20 million USD), Wing Hang Bank Limited ($20 million USD), Bank of East Asia Limited (BEA) ($15 million USD), Bangkok Bank Public Company Limited (BBL) ($10 million USD), Malayan Banking Berhad (Maybank) ($10 million USD), Sanpaolo IMI S.p.A. ($10 million USD), Shanghai Commercial Bank ($10 million USD), and UFJ Bank, Ltd. ($10 million USD). ICBC (Asia), BNP Paribas (Hong Kong), ABN AMRO Bank, and Standard Chartered Bank (Hong Kong) served as mandated lead arrangers. ICBC (Asia) also served as a coordinating arranger. CDB joined in syndication as a lead arranger. Banca Intesa, BNL, Fortis Bank, and MHCB joined in syndication as arrangers. BTMU, HVB, KEB, Wachovia Bank, Wing Hang Bank, and BEA joined in syndication as co-arrangers. BBL, Maybank, Sanpaolo IMI, SCB, and UFJ Bank joined in syndication as senior managers. During the week of January 22, 2005, the loan was launched simultaneously into sub-underwriting and general syndication. On or around February 25, 2005, the deadline for sub-underwriters was extended until the next week as banks processed their approvals; commitments were secured from two banks at the senior level and more were expected in the week ahead. The proceeds were to be used by the borrower to finance its acquisition of the desktop and notebook businesses of IBM; specifically, the $500 million USD term loan tranche was to be used to take out (refinance) $500 million USD in bridge financing provided by Goldman Sachs Group to Lenovo for the acquisition while the $100 million USD revolving credit tranche was to be used for related working capital purposes related to the integration of the business. Thee acquisition of IBM's global PC business included its desktop and notebook computer businesses and its its PC-related research & development (R&D) centers, manufacturing plants, global marketing networks, and service centers. Lenovo also acquired the right to use the IBM brand for a period of five years and permanent ownership of the renowned “Think” trademark under the agreement. Moreover, Lenovo and IBM entered a broad-based, strategic alliance in which IBM became the preferred supplier of warranty and maintenance services and preferred supplier of customer leasing and channel financing services to Lenovo, while would become the preferred supplier of PCs to IBM. IBM's PC division had lost money in the previous three-and-a-half years prior to the acquisition, with a net loss of $139 million USD on sales of $5.22 billion USD in the six months ended June 30, 2004. IBM was losing sales due to, among other things, cheaper rivals based in Asia. For Lenovo, IBM's PC division was seen as a chance to meet the interest of Chinese consumers in having mobile computers and Internet access. Analysts reported that the deal was good for IBM, allowing it to leave the low-profit PC business for more lucrative software and services. The acquisition would create the world’s third-largest PC maker and was reportedly the first major Chinese acquisition of a Fortune 100 company. This was the largest ever overseas acquisition by a Chinese technology company. The acquisition was one of the largest acquisitions by a Chinese company in the United States. The acquisition caused national security concerns in the United States. Three Republican congressmen requested that U.S. Treasury Secretary John Snow closely review the acquisition. One specific concern was that the acquisition included an IBM facility in Research Triangle Park, North Carolina, which was seen by some U.S. officials in the Department of Justice, the Department of Homeland Security, and the Committee on Foreign Investment in the United States (CFIUS) as a potential means for industrial espionage by Chinese operatives to steal technology for military purposes, given that Chinese state-owned controlled institutions had some ownership of Lenovo. In negotiations with CFIUS, IBM discussed measures to address the security concerns. The acquisition was expected to close by the end of the second quarter of 2005. On December 29, 2004, Lenovo and IBM formally filed a required notice for clearance from CFIUS. During the week of January 22, 2005, 99% of Lenovo's shareholders voted to approve the acquisition. CFIUS cleared the deal in March 2005. The acquisition was completed on April 30, 2005, with Lenovo paying $650 million USD in cash to IBM and allotted and issued to IBM 821,234,569 listed voting ordinary shares and 921,636,459 unlisted non-voting ordinary shares, credited as fully paid up at the issue price of $2.675 HKD per share. Following the acquisition, IBM held 18.9% of the total issued share capital of Lenovo and approximately 9.9% of the total voting rights of Lenovo. On May 17, 2005, 110,635,946 unlisted non-voting ordinary shares held by IBM were converted into an equal number of listed voting ordinary shares. On May 1, 2005, Lenovo entered into a Repurchase Agreement with in which IBM agreed to sell and Lenovo agreed to purchase 435,717,757 of the non-voting ordinary shares, issued to IBM for the acquisition for approximately $152,221,909 USD, or $2.725 HKD per share, which was completed on August 2, 2005. On October 10, 2005, the Export-Import Bank of China assembled a large team to conduct pre-loan due diligence issuance of a loan to support the completed acquisition. Then, on October 13, 2005, Lenovo Group Limited officially submitted a $300 million USD loan application to China Eximbank. In early November 2005, both parties signed a confidentiality agreement. On January 10, 2006, the Project Review Committee of China Eximbank approved the loan proposal for the project, issuing a $100 million USD ($780 million HKD) overseas investment loan without a corporate guarantee from Legend Holdings Limited and a $200 million USD overseas investment loan with a corporate guarantee from Legend Holdings Limited. The borrowing terms included a maturity period of five years, a grace period of three years (repayment of equal installments in 2009 and 2010, then final repayment in March 2011) and a fixed but unknown interest rate. The loan proceeds were to be used by the borrower to partially replace (refinance) the $600 million USD syndicated loan that Lenovo Group Limited secured for the transaction. The borrower (Lenovo Group Limited) drew down on the $100 million USD overseas investment loan from China Eximbank in full on March 27, 2006. It decided not to draw down on the $200 million USD overseas investment loan from China Eximbank. Record ID#107433 captures the $100 million USD portion that was drawn. Record ID#107434 captures the $200 million USD portion that was not drawn. Between April 1, 2008 and March 31, 2009, the borrower repaid $35 million USD of the loan. As of March 31, 2009, the outstanding balance was $65 million USD of which $35 million USD was payable in 2009/10 and a final repayment of $30 million USD was due in 2010/11. Between April 1, 2010 to March 31, 2011, the borrower fully repaid the remaining balance of the loan. Then, on March 13, 2006, a syndicate of 20 banks — including ICBC (Asia) — entered into a $400 million USD ($3.120 billion HKD) syndicated revolving and term loan facility agreement with Lenovo Group Limited to partly refinance the $600 million USD syndicated loan used for the acquisition of IBM's PC business. This facility carried a maturity period of five years and was repayable on the 42nd, 48th, 54th and 60th months from signing (a grace period of 3.5 years) and an interest rate of LIBOR plus a margin of 0.52% per annum. The facility included a financial covenant if Legend Holdings Limited, the controlling shareholder if Legend Holdings ceased to be the direct or indirect beneficial owner of 35% or more of the issued share capital of Lenovo, ceased to control Lenovo, or ceased to be the single largest shareholder of Lenovo. The loan proceeds were to be used by the borrower to partially replace the $600 million USD syndicated loan that Lenovo Group Limited used to purchase the IBM PC business. Record ID#107435 captures ICBC (Asia)'s contribution. In addition to ICBC (Asia), the following lenders contributed to the loan syndicate: ABN AMRO Bank N.V., BNP Paribas S.A., Citigroup, HSBC, and Standard Chartered Bank plc. These known lenders served as mandated lead arrangers. Syndication began on January 24, 2006 and was launched at $300 million USD. As of March 31, 2007, the borrower had not yet drawn down on the $400 million USD syndicated loan. As of March 31, 2008, the borrower had not fully drawn down on the $400 million USD syndicated loan. During the global recession, Lenovo Group suffered serious operating losses in the fourth quarter of 2008, triggering a breach of certain financial covenants in connection with the $400 million USD syndicated loan. Lenovo obtained consent from the syndicated banks the waiver from strict compliance with those financial covenants and will enter into a revised loan agreement.. In May 2009, the lending syndicated agreed to an amendment, including increased fees. As of March 31, 2010, the outstanding balance of the facility was $200 million USD. Between April 1, 2010 to March 31, 2011, the borrower fully repaid the outstanding balance of the loan. By 2012, the former IBM division focused its operations in China and was world's largest PC producer in 2012.