A group of Japanese banks is arranging a 1.7 trillion yen (US$14.3 billion) line of credit for Citigroup to fund the U.S. lender's acquisition of Nikko Cordial, sources close to the deal
said on Friday.
Citigroup confirmed that it had secured financing but declined to say how much. People involved said the credit line amounted to 1.4 trillion yen with an option for an additional 300 billion yen -- a total roughly equal to the maximum cost of Citigroup's bid for Nikko.
Analysts say Citigroup has enough cash to fund its offer for Japan's No. 3 securities brokerage, but by raising money locally it can take advantage of Japan's low interest rates and reduce exchange-rate-related risks.
The credit line "will help us better match the currency requirements of the recently announced Nikko Cordial transaction," Citigroup said in a statement, though it described the fundraising as being for "general corporate purposes" not limited to the takeover bid.
Citigroup launched its tender offer for Nikko last month. It is aiming for a minimum 50% stake but is offering to buy all shares tendered, putting the potential cost including outstanding shares and options grants at 1.677 trillion yen.
Japan's three biggest banks -- Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group -- and Citigroup itself are the mandated arrangers for the one-year financing, the sources said.
More than 10 domestic and foreign banks are expected to share the burden in what could be Japan's biggest-ever syndicated lending deal, the sources said. Participation is open to big names that can lend at least 50 billion yen each.
The arrangers plan to sound out potential participants by the middle of this month and fix the size of the deal on April 26, the day that Citigroup's tender offer for Nikko closes, one source said. Signing is expected in May.
Citigroup's 1,700 yen-per-share bid for Nikko, part of a wider strategy to expand its international business, would be the top U.S. bank's biggest-ever acquisition in Asia.
Analysts generally expect the bid to succeed, although several major Nikko shareholders have complained that the offer price is too low.
On Thursday, a third major Nikko investor placed a sell order for a big block of stock at a price above Citigroup's offer, a move designed to put pressure on the bank to sweeten its bid.
Southeastern Asset Management said it placed an order to sell 6.6% of Nikko's shares at 1,900 yen per share, joining Bermuda-based Orbis Investment Management and Chicago-based Harris Associates, which have already offered their slightly smaller stakes in Nikko at the same price.
Including other sell orders from smaller shareholders, at least 20% of Nikko stock has been offered at 1,900 yen in the last few days.