HONG KONG The mystery lender behind a Thai billionaire's $9.4 billion purchase of a stake in China's No.2 insurer was UBS, which offered the region's fourth largest bridge loan ever and a complex financing package known to only a few involved, people with knowledge of the matter told Reuters.
The Swiss bank's financial backing for the biggest foreign purchase of Chinese stock explains how a Thai conglomerate scraped together $7.4 billion in cash for the deal's final payment, after its main lender backed out at the 11th hour.
The rescue role the bank played in CP Group's acquisition of HSBC's 15.6 percent stake in Ping An Insurance Group Co of China was not disclosed by the companies.
People with direct knowledge say that UBS AG backed the deal with two financing facilities, the major piece being a five year, roughly $5.5 billion loan.
The short term facility was a bridge loan that was replaced by longer term financing, the people say. At $5.5 billion, the short term facility would have been the fourth largest Asia Pacific bridge loan on record, according to Thomson Reuters data.
For the help it provided, UBS is set to earn another milestone. People familiar with the matter say the bank is expected to reap, over time, about $100 million in arranging fees alone, a massive amount for one bank on a single deal.
In estimated fee terms, that is more than Deutsche Bank earned from four investment banking divisions in Asia-Pacific in the first quarter of 2013, according to estimates by Thomson Reuters/Freeman Consulting.
Such an extraordinary arrangement with a prized client, Thai billionaire Dhanin Chearavanont, is both a rare move for UBS and signals a key shift in strategy for the bank.
The Dhanin deal shows that the investment bank is focusing more on high margin transactions than standard deal flow. The aim is to cater more to faithful, fee-paying clients and constructing deals for them that may be higher in risk, but also higher in reward.
"This is certainly something they have the skill to do and it makes sense," said Peter Kennan, who runs Hong Kong-based hedge fund Black Crane Investment Management.
"The straight vanilla business is going to remain tough and there are many off piste high margin opportunities that they could capture."
The strategy, taken on by rivals as well, comes at a time when investment banking revenues are under pressure, in part from a drop in the high-fee business of equity capital markets banking across Asia and other parts of the world.
A jumbo loan for UBS, backed by the borrower's assets, is new turf for the bank, known more for its M&A skills and equity capital markets prowess in the region.
UBS declined to comment for this story. CP Group also declined to comment.
UBS's secret role in the saga is just one of several plot twists that emerged in HSBC's sale of its stake in Ping An, the world's second-largest insurer by market value.
On December 5, HSBC Holdings Plc announced that affiliates of Dhanin's conglomerate Charoen Pokphand Group (CP Group) agreed to buy the Ping An stake for $9.4 billion, and to pay nearly $2 billion up front. The remainder was to come early in 2013, pending approval from China's insurance regulator. The deadline for approval was set for February 1.
According to the December 5 statement, the second installment was backed by a branch of state lender China Development Bank Corp.
Three weeks later, Chinese magazine Caixin published a story based on anonymous sources saying that the up-front payment came from entities not directly affiliated with CP Group. Beijing was under pressure to clean up corruption, and China Development Bank did not want to take any chances. People familiar with the situation say the bank backed out of its loan in early January.
HSBC announced on February 1 that China's insurance regulator had granted approval, with final payment coming in five days. The HSBC release made no mention of China Development Bank.
The question quickly surfaced: Without China Development Bank, how did Dhanin secure the $7.4 billion? The official line was that CP Group managed to fund the last installment itself. But doubts about that explanation lingered.
Although Dhanin is Thailand's richest man with a net worth of $14.3 billion according to Forbes, coming up with $7.4 billion on his own was out of the question, people familiar with the matter said. He and UBS began discussions on financing in early January, they said.
Dhanin is a private banking client of UBS and the bank has worked with him and his various corporations for at least a decade on stock offerings, restructurings and acquisitions. UBS was already the sole M&A adviser to CP on the Ping An deal, a role that would earn the bank around $25 million in advisory fees, according to Thomson Reuters data.
Dhanin's last-minute snag quickly turned UBS into a lender as well.
According to people familiar with the matter, UBS arranged a short-term facility, crafted in order to show the seller and the regulators that Dhanin had the cash on hand to pay the final amount.
A long-term financing facility then replaced the first one, once the deal was approved and the two parties knew it would go through without issue.
That second facility is a five-year, roughly $5.5 billion loan, with a few other financing products attached, including a hedging mechanism, according to the people familiar with the matter.
A financing package of that size, huge in any market, was so large that Zurich-based UBS Chief Executive Sergio Ermotti signed off on the deal personally, the people said.
Part of the roughly $5.5 billion loan was syndicated to UBS private banking clients, the people said, so that UBS is not exposed to the entire amount. Dhanin and CP Group came up with the remaining cash needed for the final $7.4 billion payment.
For UBS, backing the loan is Dhanin's personal wealth and the various corporate entities he controls, including several publicly traded companies.
The hedging part of UBS's financing package, the people say, was put in place to protect Dhanin's financial interests if Ping An's shares fall below a certain level.
The details of the package were privately negotiated and only a few senior bankers and executives are aware of the precise, complex details.
"The client had an issue, and UBS provided a solution. And UBS will be paid a fee for that solution," said one of the people familiar with the deal.
(Additional reporting by Kane Wu of Basis Point, and Clare Baldwin, Stephen Aldred, Nishant Kumar and Khettiya Jittapong; Editing by Edmund Klamann and Michael Urquhart)