HONG KONG (Reuters) - Bank of China and Morgan Stanley have combined to provide $7 billion of loans to finance Shuanghui International’s record deal to buy U.S. pork producer Smithfield Foods SFD.N, people familiar with the matter said on Friday.
The total value of the Chinese company’s record agreement was $7.1 billion, including net debt, according to the deal’s announcement on Wednesday. But the two companies did not offer details on how Shuanghui financed the deal.
According to the people familiar with the matter, Bank of China has provided up to $4 billion in financing to Shuanghui, in a five-year term loan, and will syndicate the facility.
Morgan Stanley is adding $3 billion in a term loan as well, they said, and will also sell down the amount.
The $7 billion of financing will go to the $4.9 billion in cash that Shuanghui agreed to pay Smithfield, with rest going to refinancing Smithfield’s debt.
Smithfield has $3.45 billion in gross debt outstanding, which includes corporate and high yield debt, Thomson Reuters data show. The company has around $1 billion in cash and short term investments, the data show.
Morgan Stanley and Bank of China declined to comment on the loan deals. Morgan Stanley also advised Shuanghui on its bid.
The deal will face scrutiny by the Committee on Foreign Investment in the United States (CFIUS), a government panel that assesses national security risks. At least one member of Congress said the deal raised alarms about food safety.
If successful, the agreement would mark China’s biggest purchase of a U.S. company. It also highlights the country’s growing appetite for foods such as pork as its middle class expands, making China more reliant on foreign producers.
Shuanghui International, which controls Henan Shuanghui Investment & Development Co 000895.SZ, China’s largest meat processor, would be joining forces with a company that has a global herd of 1.09 million sows, according to Successful Farming magazine, and which raises close to 16 million hogs a year.
Demand for U.S. meat in China has risen 10-fold over the past decade, fuelled in part by a series of food safety scandals - from rat meat passed off as pork to thousands of pig carcasses floating down a river. Public anxiety over cases of fake or toxic food often spreads quickly.
Shuanghui International is an offshore entity registered in Hong Kong, and is 5.2 percent invested by Goldman Sachs’ main investing arm and 33.7 percent-held by funds associated with China-focused private equity firm CDH. Another Chinese private equity firm New Horizon Capital holds 4.2 percent, and Singapore sovereign wealth fund Temasek 2.8 percent.
Reporting by Kane Wu of Basis Point; Additional reporting by Denny Thomas; Editing by Michael Flaherty and Jeremy Laurence