Rothschild’s Paris-based team is handling the discussions
with Petroplus, the source added.

Lenders froze about $1 billion of uncommitted loans under
Petroplus’ revolving credit in December, and the company started
to temporarily close three refineries, including the Petit
Couronne plant in France, which employs 550 people.

Petroplus is negotiating with lenders to restore the funds
it needs to keep its five European refineries open.

Petroplus could not immediately be reached for comment.

Distressed debt investors are buying Petroplus bonds as the
company moves towards a debt restructuring, banking sources
said.

The company’s $600 million, 6.75 percent senior notes due
2014 were offered at 45 percent of face value on Wednesday,
according to one bank’s distressed-debt team.

This suggests sellers are prepared to accept a 55 percent
loss on bond investment to get rid of their exposure, which
points to losses on a potential restructuring.

Petroplus’ $1.05 billion revolving credit facility was also
offered at 85 percent of face value in the secondary loan
trading market, according to one bank’s loan trading desk,
although it is unclear if any trades have taken place.

(Editing by David Hulmes)

Sichuan Tengzhong Heavy Industrial Machinery, advised by Credit Suisse, agreed to buy Hummer last June but that deal was later shelved. Similarly Beijing Automotive Industry Holding Co pulled out of a possible purchase of GM’s Swedish asset Saab. That deal had been fronted by smaller Swedish luxury carmaker Koenigsegg.

At the time, advisers murmured that these deals had been killed by the Chinese authorities baulking at allowing smaller vehicle makers in the unconsolidated Chinese market buying tired Western consumer brands. These would have needed significant investment to be restructured.

Geely, which is backed by a Goldman Sachs private equity fund, is in a different league. Its move, principally funded by US$1.6bn cash, looks credible and Volvo is in better shape and might need less effort to turnaround, fuelled by rampant Chinese demand, than other autos on the block. One estimate says China’s will post 12% annualised GDP growth this quarter.

That said, the Chinese state itself, although backing private company Geely’s deal, still seems more focused on easier asset deals. On the same day state oil company Sinopec has splashed out US$2.5bn on African assets, this time offshore from Angola. Ironically these were owned by Petrochina.

This is Sinopec’s first purchase of overseas upstream assets, although it did agree to buy Addax Petroleum, which has assets in northern Iraq, for US$9bn last June. It has plans for further deals.

Such transactions, in more welcoming areas of the world are easier to pull off. But asset deals elsewhere are harder to complete. Take Chinalco’s aborted purchase of certain Rio Tinto assets.

The uneasy relationship between China and the Anglo-Australian miner was shown this morning after four Rio executives were jailed for accepting bribes and stealing commercial secrets.

The US$35 billion transaction – the biggest ever in the sector – also fits in with the currently accepted reading of the financial runes: that the thriving economies of Asia will provide much of the next decade’s growth. Nevertheless Thiam has done well to secure the services of three of the financial crisis’s undoubted winners in Credit Suisse, JP Morgan Cazenove and HSBC.

The impressive line-up are only too willing to flex their financial might to back such a deal through a US$21 billion underwritten rights issue, the largest ever for acquisition purposes. If the Pru’s biggest investors, Capital, BlackRock and Legal & General, are unwilling to take up their rights, finding fresh investors should not be too difficult.

Institutions had already been sounded out about buying shares in AIA directly, via a Hong Kong float, led by Deutsche and Morgan Stanley, touted to bring in up to US$20 billion. The Pru is paying a rich price, 24 times last year’s US$1.44 billion operating profits, to take control of AIA. It seems unlikely that a rival will step in and spoil the show.

Chinese financial players would be unwilling to enter a bidding war, based on past form. In the US, MetLife is already in negotiations to buy AIG’s American Life Insurance Company for up to US$15 billion. General Re owner Warren Buffett seems spent after splashing out US$26 billion for Burlington Northern railroad.

European interlopers, such as Axa, Zurich or Allianz, can’t be ruled out though, if an estimated US$1 billion break fee doesn’t act as a deterrent. However, buying up part of the Pru’s UK business could be an alternative for them.

Thiam has denied this is an option. But the rights issue effectively doubles Pru’s equity capital, after today’s 12% fall in the share price. Add in the US$5 billion of debt taken on and divestments might be back on the agenda before long.

Cadbury’s board can be pleased they managed to extract so much value when alternative bids seemed unlikely. Kraft’s management, led by Irene Rosenfeld, has remained disciplined helped by the side deal: selling its pizza business to Nestle for US$3.7bn.

Nevertheless, increasing the cash element of its offer to 500p a share, or 60% of the total bid, could cause Kraft some financial headaches, pushing its debt levels to over four times EBITDA. Rosenfeld denies that it will affect the company’s credit rating. If it did, the deal’s rationale would be dented.

That suggests that major shareholder Warren Buffett, who lent Mars US$4.4bn when it bought Wrigley two years ago for US$23bn, could have helped Kraft out on that front. The offer document mentions “alternative financing sources”. Rosenfeld would not comment further.

Another way Kraft could maintain its rating would be if it divested further assets before its £5.5bn bridge financing comes due in one year. Such proposals could have been broached with the ratings agencies. Kraft says the bridge is being amended.

It’s likely Kraft will issue bonds whilst the wind is fair to refinance the shorter term loan. If not, Nestle could be willing to pick up isolated brands, such as Hall’s cough sweets. But Kraft seems unwilling to sell any goodies immediately.

What seems unlikely, given Kraft’s own financial question marks about the enhanced cash-dominated deal, is that Hershey will be able to finance a higher offer before the Takeover Panel deadline of next Monday morning, January 25.