Hollysys Automation Technologies [NASDAQ: HOLI]’s management has lined up with Chinese state-owned conglomerate CITIC Group for a USD 1.6bn management buyout (MBO) of the Chinese automation control system developer, said four sources familiar with the situation.
The management team will take a majority stake in the buying consortium, while a party affiliated with CITIC will hold a minority stake, the first three sources said, noting that more private equity firms are preparing to join the consortium.
The consortium is currently in talks with a couple of mainland lenders for bridge loan financing, three of the sources said.
Total loan size will likely be less than USD 1bn, two of the sources said. The proposed 1-year maturity loan facility may carry an 8% to 10% interest rate, the first and second source said.
The transaction is scheduled to launch in the third quarter of this year, all the sources said.
A Reuters’ report in September 2022 said Hollysys management was planning to take the Chinese automation control system developer private at a valuation of USD 1.8bn.
Prior to that the company received a non-binding offer of USD 25 per share from Recco Control and Dazheng Group-led consortium, as per a July 2022 announcement. This followed confirmation of indicative proposals from at least six bidders during 2021. In January 2022, the company said it was not for sale and would suspend the evaluation of all unsolicited proposals.
2024 relisting targeted
Upon the completion of privatization, the management will start to prepare for the company's relisting on the mainland China's stock market, the sources said.
A relisting timetable is varied and is hard to estimate, but the consortium is targeting a listing as soon as 1H24, the first source said.
The company, which has a market cap of USD 979.2m, recorded USD 81.2m in net income along with USD 582.4m in total revenue for the first nine months ended March 2023, according to its 3Q financial results.
As of 31 March 2023, the company has no short-term bank loans, USD 32m long-term loans as well as cash and cash equivalents of USD 640.2m, referring to its 3Q financial results.
CITIC Group, one of the top-tier state-owned enterprise in China, owns and controls 17 listed flagship companies trading on mainland China and Hong Kong bourses, including CITIC Limited [HKG:0267], a HKD 274bn (USD 35bn) market cap conglomerate with businesses ranging from industrial to mining operations.
Shares in Hollysys last closed at USD 15.8 per share on Monday 5 June.
Hollysys and CITIC did not respond to requests for comment.