HONG KONG: Richard Li Tzar-kai's private equity fund risks losing control of indebted Bulgarian telecommunications operator Vivacom because lenders who provided the firm with high-interest loans are battling to seize it.
Vivacom is set to breach agreements on its '1.64 billion (HK$15.3 billion) loans by the end of the month.
PineBridge Investments, the buyout house owned by Li which controls Vivacom's shares, wants to restructure the firm's debt in a deal that would see these so-called mezzanine lenders, who are owed '325 million, lose everything.
The incensed debtholders, including US hedge fund Tennenbaum Capital Partners and French insurer Axa's private equity arm, want to push PineBridge out of the business and take a majority stake in the company by swapping their loans for shares, two people involved in discussions confirmed.
Mezzanine debt carries weak legal rights in debt restructurings. To compensate for the riskiness of their loans, Vivacom has paid the mezzanine financiers 11.75% annual interest. But these junior lenders insist they have a stronger negotiating position than PineBridge, because debt-holders traditionally get repaid before shareholders when firms cannot meet all their loan obligations.
"The mezzanine holders do not think a shareholder could have more rights than them," a source connected to the junior lenders argued.
RBS and Deutsche Bank, who lead a group of senior lenders owed '1 billion by Vivacom, will judge who wins the fight because of the amount of money they are owed and because their loans are secured against assets.
A person involved in the talks said the banks would decide by the end of this week. Vivacom, Bulgaria's largest fixed-line telecoms operator, is set to break its lending covenants because its half-year profit will count for an insufficient percentage of its debts, sources connected to the business confirmed. In such situations, shareholders can lose control of companies to lenders. But RBS and Deutsche's decision will be tough because PineBridge has taken a lead role running Vivacom. PineBridge employee Pierre Mellinger is the Bulgarian firm's chairman. A change of leadership could unsettle employees and damage the business.
Vivacom declined to comment, as did RBS and Deutsche, Li and PineBridge, Tennenbaum and Axa.
PCCW chairman Li inherited control of Vivacom when he bought PineBridge from bailed-out US insurer AIG in March this year. He visited Sofia last week and met with Bulgarian government officials. A source close to Li insisted this was a courtesy visit and nothing to do with Vivacom. PineBridge leads a consortium of investors who invested '460 million in Vivacom in August 2007. This included '50 million of PineBridge's cash. Vivacom's senior lenders want its debt load cut to '800 million.
So Li's fund has asked the banks to write off '200 million of the '1 billion they are owed, a person involved in discussions said. A group of so-called "second lien" lenders, owed '200 million, are being asked to exchange those debts for Vivacom shares. But the private equity shareholder does not propose to give the mezzanine financiers anything.
Li's fund has offered to inject '200 million of new cash into Vivacom. The mezzanine financiers have promised '100 million of new capital. ' South China Morning Post
Vivacom is set to breach agreements on its '1.64 billion (HK$15.3 billion) loans by the end of the month.
PineBridge Investments, the buyout house owned by Li which controls Vivacom's shares, wants to restructure the firm's debt in a deal that would see these so-called mezzanine lenders, who are owed '325 million, lose everything.
The incensed debtholders, including US hedge fund Tennenbaum Capital Partners and French insurer Axa's private equity arm, want to push PineBridge out of the business and take a majority stake in the company by swapping their loans for shares, two people involved in discussions confirmed.
Mezzanine debt carries weak legal rights in debt restructurings. To compensate for the riskiness of their loans, Vivacom has paid the mezzanine financiers 11.75% annual interest. But these junior lenders insist they have a stronger negotiating position than PineBridge, because debt-holders traditionally get repaid before shareholders when firms cannot meet all their loan obligations.
"The mezzanine holders do not think a shareholder could have more rights than them," a source connected to the junior lenders argued.
RBS and Deutsche Bank, who lead a group of senior lenders owed '1 billion by Vivacom, will judge who wins the fight because of the amount of money they are owed and because their loans are secured against assets.
A person involved in the talks said the banks would decide by the end of this week. Vivacom, Bulgaria's largest fixed-line telecoms operator, is set to break its lending covenants because its half-year profit will count for an insufficient percentage of its debts, sources connected to the business confirmed. In such situations, shareholders can lose control of companies to lenders. But RBS and Deutsche's decision will be tough because PineBridge has taken a lead role running Vivacom. PineBridge employee Pierre Mellinger is the Bulgarian firm's chairman. A change of leadership could unsettle employees and damage the business.
Vivacom declined to comment, as did RBS and Deutsche, Li and PineBridge, Tennenbaum and Axa.
PCCW chairman Li inherited control of Vivacom when he bought PineBridge from bailed-out US insurer AIG in March this year. He visited Sofia last week and met with Bulgarian government officials. A source close to Li insisted this was a courtesy visit and nothing to do with Vivacom. PineBridge leads a consortium of investors who invested '460 million in Vivacom in August 2007. This included '50 million of PineBridge's cash. Vivacom's senior lenders want its debt load cut to '800 million.
So Li's fund has asked the banks to write off '200 million of the '1 billion they are owed, a person involved in discussions said. A group of so-called "second lien" lenders, owed '200 million, are being asked to exchange those debts for Vivacom shares. But the private equity shareholder does not propose to give the mezzanine financiers anything.
Li's fund has offered to inject '200 million of new cash into Vivacom. The mezzanine financiers have promised '100 million of new capital. ' South China Morning Post
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