China Construction Bank contributes to a €800 million EUR syndicated loan to China National Tire & Rubber to facilitate its acquisition of Pirelli & C. S.p.A.

Project narrative

On April 30, 2015, a syndicate of 26 lenders — including the Hong Kong Branch of China Construction Bank Corporation (CCB), China Construction Bank (Europe) SA, the Industrial and Commercial Bank of China (Europe) SA (ICBC (Europe)), and the Milan Branch of ICBC (Europe) — entered into a €6,800,000,000 EUR ($7.28 billion USD) syndicated bridge loan agreement with Marco Polo Industrial Holding SpA — an Italy-incorporated special purpose vehicle (SPV) at the time wholly-owned by Italy-incorporated Marco Polo International Holding Italy SpA, which was then wholly-owned by Marco Polo International Italy SpA, an Italy-incorporated holding company wholly-owned by Luxembourg-incorporated Fourteen Sundew S.à rl, wholly owned by Hong Kong-incorporated CNRC International Holding (HK) Limited, which was 25% owned by Chinese state-owned Silk Road Fund Co. Ltd. and 75% owned by Hong Kong CNRC International Limited, a Hong Kong-incorporated wholly-owned subsidiary of China National Tire & Rubber Co., Ltd. (CNRC), a wholly-owned subsidiary of Chinese state-owned China National Chemical Corporation (ChemChina) — to finance its acquisition of Pirelli & CSpA The loan carried a maturity period of 18 months (1.5 years) and an interest rate of EURIBOR of 275 basis points (bps) for the first 12 months, increasing to 325 bps for the next six months and then 375 bps. The facilities were divided into two loans: €4,400,000,000 EUR facility referred to as the Bidco Senior Facilities Agreement and a €2,400,000,000 EUR facility referred to as the Multicurrency Term and Revolving Facilities Agreement. The loan was secured by (ie collateralized against) the entire share capital of Marco Polo Industrial Holding SpA and all the ordinary and savings shares of Pirelli & CSpA. Record ID#109934 captures the Hong Kong Branch of CCB's contribution to the €4.4 billion EUR tranche. Record ID#110021 captures the Hong Kong Branch of CCB's contribution to the €2.4 billion EUR tranche. Record ID#110017 captures CCB (Europe)'s contribution to the €4.4 billion EUR tranche. Record ID#110022 captures CCB (Europe)'s contribution to the €2.4 billion EUR tranche. Record ID#110018 captures ICBC (Europe)'s contribution to the €4.4 billion EUR tranche. Record ID#110023 captures ICBC (Europe)'s contribution to the €2.4 billion EUR tranche. Record ID#110019 captures the Milan Branch of ICBC (Europe)'s contribution to the €4.4 billion EUR tranche. Record ID#110024 captures the Milan Branch of ICBC (Europe)'s contribution to the €2.4 billion EUR tranche. In addition to the four Chinese state-owned lenders, the following banks contributed to the loan syndicate: JP Morgan Securities plc, Barclays Bank plc, Banca Popolare di Milano Scrl, the Milan Branch of Bank of America, NA, Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) SpA, JP Morgan Limited, and JP Morgan Europe Limited. JP Morgan Limited was the original, exclusive underwriter. The Hong Kong Branch of CCB, Intesa Sanpaolo, and UniCredit served as the lead arrangers and bookrunners and additional underwriters. ICBC served as a mandated lead arranger. The proceeds of the €4.4 billion EUR loan were to be used by the borrower to acquire Pirelli. The proceeds of the €2.4 billion EUR loan were to be used by the borrower to refinance a portion of the existing Pirelli's indebtedness and working capital, to which Pirelli would be entitled to adhere following completion of the acquisition of the initial stake. The €4.4 billion EUR loan was amended on December 11, 2015. In addition, in 2015, a three-bank syndicate — China Development Bank Corporation (CDB), the Export-Import Bank of China, and China Construction Bank — entered into a €800 million EUR syndicated "preferential" loan agreement with China National Tire & Rubber Co., Ltd. to support the acquisition of Pirelli. As of the end of 2015, €340 million EUR had been drawn down under it. China's Ministry of Finance later issued a RMB 17 million refund to CNRC on the interest of the loan. Record ID#110028 captures CDB's contribution. Record ID#110029 captures China Eximbank's contribution. Record ID#110030 captures CCB's contribution. Furthermore, in 2015, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) provided a RMB 500 million (€66 million EUR) grant to China National Tire & Rubber Co., Ltd., nominally "promote global production capacity cooperation under the 'One Belt, one Road Initiative', in line with the Notice of the Ministry of Finance on Release of Central State-Owned Capital Operating Budget in 2016", that was used to facilitate the acquisition of Pirelli. Record ID#110040 captures the SASAC grant. Pirelli & CSpA was an Italy-incorporated multinational fire manufacturer listed on the Borsa Italiana and headquartered in Milan. Pirelli was the world's fifth largest global producer of premium tires, an original equipment manufacturer (OEM) producer for Porsche, Lamborghini, Bentley, Ferrari, Maserati, and automotive manufacturers. Pirelli had sales exceeding €6 billion EUR and a sales network across over 160 countries and regions. Among other things, it was the sole tire supplier to Formula 1. It had 36,753 employees and 24 factories in 12 countries and regions including in the United States, Canada, Brazil, China, and Russia. The €7.3 billion EUR acquisition was expected to help Pirelli by combining its undersized industrial and truck-tire business with ChemChina's Aeolus Tire Co. unit. The acquisition also had plans to expand Pirelli's Asia business and improve ChemChina's market share in premium consumer ties. Chief executive officer Mario Tronchetti Provera would remain in the same position under the new ownership. This was the largest non-recourse financing for a Chinese acquirer. ChemChina was the first Chinese company to acquire a globally renowned top class tire producer, technology, and distributor. The acquisition was the largest overseas acquisition in China's manufacturing industry. The acquisition was expected to improve the overall development of the Chinese tire industry. On March 22, 2015, China National Chemical Corporation (ChemChina) and China National Tire & Rubber Co., Ltd. (CNRC) signed a sale and purchase and co-investment agreement with the shareholder of a 26.19% stake in Pirelli & CSpA: Camfin SpA, a company owned by shareholders Long-Term Investments Luxembourg SA, wholly-owned by closed-end direct investment fund “RFR Long-Term Investments”, which was wholly owned by Russia-incorporated Long-Term Investments LLC, a company owned by Neftgarant Non-State Pension Fund, a Russian institutional, autonomous and independent investor associated with Russian majority state-owned oil company PJSC Rosneft Oil Company (50% stake) and by Coinv SpA, an Italy-incorporated company 76% owned by Nuove Partecipazioni SpA, an Italy-incorporated company owned by Marco Tronchetti Provera & CSpA, a vehicle for Italian businessman and Pirelli chief executive officer, 12% owned by Manzoni Srl, company owned by Intesa Sanpaolo SpA, and 12% owned by UniCredit SpA. Per the agreement, Marco Polo Industrial Holding SpA would purchase 96,779,841 Pirelli ordinary shares (20.34% of Pirelli shares) at €15.00 EUR per share from Camfin, and, if possible, 27,831,232 Pirelli ordinary shares (5.85% of Pirelli shares) from Cam 2012 SpA, a company wholly-owned by Camfin, for a total of 26.19% of Pirelli. Then, Camfin and Long-Term Investments Luxembourg SA and LTI Holding Srl, a wholly-owned subsidiary of Long-Term Investments Luxembourg SA, would reinvest the proceeds from the sale into Italy-incorporated Marco Polo International Italy SpA, a vehicle held by ChemChina that owned Marco Polo International Holding Italy SpA, which would then launch a mandatory tender offer for the ordinary share capital of Pirelli and the voluntary tender offer for €15 EUR per share on the savings share capital of Pirelli with the aim to totally acquire it and then delist it. The sale and purchase and co-investment agreement was amended on August 5, 2015. The acquisition of Camfin's stake was expected to be completed during summer 2015. On August 11, 2015, Marco Polo Industrial Holding SpA purchased the initial stake and Camfin reinvested in Marco Polo International Italy SpA, winning a 35% stake in. A shareholder's agreement was signed on August 11, 2015 and a put option deed and call option deed were signed. The offer began on September 9, 2015 and ended on October 13, 2015 and was then reopened on October 21 to 27, 2015. On November 6, 2015, Marco Polo Industrial Holding exercised its squeeze-out right to acquire 100% of the share of Pirelli, which was then delisted, though with 6,732% of the savings share capital still listed as of December 22, 2015. Marco Polo Industrial Holding was to merge into Pirelli. Ultimately, ChemChina ended up with a 65% indirect stake in Pirelli. In July 2016, a syndicate of about 20 banks — led by JPMorgan, with the bank list kept private (and thus, potential Chinese lender involvement unknown) — entered into a €4.8 billion EUR syndicated loan to partly refinance the €6.8 billion EUR bridge loan. CNRC's ownership of Pirelli, specifically Pirelli's subsidiary Pirelli Tire Co. Ltd, caused issues when the European Union decided to impose countervailing duties on imports of certain pneumatic tires, new or retreaded, of rubber, from China as part of anti-dumping measures in 2018. The loans and grant from Chinese state-controlled equity were cited as evidence that the Chinese Government was supporting the acquisition and thus subsidizing it (being grounds for anti-dumping tariffs).