Narrative
Full Description
Project narrative
Around November 30, 2010, financial close was reached on a deal in which Pacific Century Motors (PCM) — a Chinese special-purpose entity controlled by SOE Beijing E-Town International Investment & Development Co Ltd formed to acquire Nexteer Automotive — secured a total of $316 million USD in bilateral loans from two major Chinese banks to support its acquisition. PCM received a $190 million USD loan from Bank of China’s Los Angeles Branch and a $126 million USD loan from ICBC’s Singapore Branch. Nexteer Automotive, based in Saginaw, Michigan, is a global leader in automotive steering and driveline systems. The Bank of China loan had a scheduled maturity of October 2014 with an interest rate of LIBOR plus 1.4%. The ICBC loan carried a higher margin — LIBOR plus 3.0% — and matured in October 2015. The proceeds were used by PCM to finance its $450–465 million USD acquisition of Nexteer Automotive from General Motors. These loans bridged the funding gap for PCM and enabled the timely closing of the acquisition on December 1, 2010. While Bank of China contributed $190 million USD and ICBC contributed $126 million USD to this loan (Record ID# TBD), the loans were guaranteed by Beijing E-Town (the investment arm of the Beijing municipal government), the controlling shareholder of Beijing E-Town, and AVIC — the large central government-owned aviation conglomerate. Chinese authorities including the NDRC and SAFE approved the outbound capital transfer, permitting both banks to disburse funds by late November 2010 in time for the closing. In March 2011, AVIC Automobile Industry Holding Co., Ltd. (the automotive subsidiary of the giant state-owned Aviation Industry Corporation of China) acquired a 51% controlling stake in Pacific Century Motors. AVIC’s automotive unit had actually joined the PCM investor group in mid-2010 (after Tempo encountered financial difficulties), although AVIC stayed “largely in the background” during the initial purchase. The formal transfer of control happened via a public share auction: AVIC bought 51% of PCM China (effectively 51% of Nexteer) in a deal concluded on March 17, 2011. This made AVIC the controlling shareholder of Nexteer Automotive, while Beijing E-Town and its partners (Tempo/PCM Systems) retained the remaining 49% ownership. The acquisition of Nexteer by a Chinese government-backed entity took place amid growing U.S. concern over foreign (especially Chinese) investment in strategic industries. The Committee on Foreign Investment in the United States (CFIUS) was notified of this purchase and no national security objections were found. Although CFIUS did not block the sale, U.S. lawmakers and officials took note of a Chinese state-owned enterprise acquiring a major U.S. automotive supplier. Some Members of Congress voiced strategic concerns soon after the deal. On October 29, 2012, China Eximbank issued two loans: $126 million to PCM (Singapore) Steering with features a 8 year maturity payment (start date is June 2014, and maturity is October 2020) with LIBOR+3.5% and a $300 million USD loan to PCM (US) Steering with the same loan terms. The proceeds of the loan are for debt refinancing of the existing loan purposes. In addition, these two loans were guaranteed by AVIC (51%) and Beijing E-Town (49%). These two companies were intially direct subsidiaries of PCM China. In 2013, the owners created Nexteer Hong Kong, which eased asset management issues. Nexteer Hong Kong controls the newly crewated Nexteer Cayman (a limited liability company incorporated in the Cayman Isalnds) , of which role was for IPO listing. Ultimately, PCM China transferred its ownership of PCM (US) Steering and PCM (Singapore) Steering to Nexteer Cayman.
Staff comments
1. Pacific Century Motors, Inc. (PCM) was a Chinese investment vehicle formed in 2010 to acquire Nexteer Automotive from General Motors. Initially, it was a joint venture between Beijing E-Town International Investment & Development Co., Ltd., the investment arm of the Beijing municipal government (holding 75%), and PCM Systems, a private Chinese automotive company (holding 25%). 2. The deal did not trigger strict scrutiny by CFIUS. Nexteer’s business (automotive steering systems) was not an obvious defense or security-sensitive sector, which meant a CFIUS review was not legally mandatory and likely viewed as routine. According to a U.S. Chamber of Commerce case study, “technically [the deal was] not required to undergo review by CFIUS” because it posed no clear national security impact. In practice, this implies that either a voluntary CFIUS filing was made and resulted in approval, or the parties judged the risk low enough that the deal quietly passed CFIUS oversight. No CFIUS mitigation measures were imposed on the Nexteer acquisition, and it closed successfully by the end of 2010. However, in subsequent years, U.S. regulators grew more vigilant. The U.S.-China Economic and Security Review Commission (USCC) highlighted Nexteer’s case in discussions of China’s “state capitalism” strategy 3. Local and industry stakeholders often welcomed the rescue of Nexteer. In Michigan, the deal was seen as stabilizing an important employer. The new Chinese owners publicly committed to honoring UAW labor agreements and to adding jobs in Saginaw as part of the takeover. The United Auto Workers (UAW) and local officials were cautiously optimistic, since the alternative might have been plant closures. The state of Michigan even offered incentives – Nexteer received a 10-year, $70 million state tax credit to support its operations under PCM’s ownership