ChemChina and Sinochem plan $100bn merger
−− Bankers say tie-up is politically driven giving ChemChina the muscle to absorb Syngenta
May. 9, 2017
The merger would follow ChemChina’s $43bn purchase of Swiss agrochemicals leader Syngenta, which was backed by 80 per cent of the Swiss group’s shareholders last Friday, amid more general consolidation of the global agrochemicals industry.
With 1.4bn mouths to feed, China is eager to control technology in seeds, herbicides and pesticides despite widespread domestic opposition to genetically modified crops.
Bankers say the merger of the two domestic groups is politically driven, aimed at ensuring ChemChina has the financial strength to absorb Syngenta. The heavily indebted chemicals conglomerate will have achieved China’s largest overseas acquisition when the Syngenta purchase is concluded.
Bridge financing for the Syngenta purchase has been in place for more than a year, thanks to a banking consortium led by HSBC. But ChemChina has revealed few details of its final financing plans — a mix of loans, equity and support from Chinese conglomerate Citic.
ChemChina had a debt-to-equity ratio of 256 per cent at the end of 2015, while Sinochem’s ratio was 128 per cent, according to Bloomberg.
Since then, Sinochem has completed $1.4bn in acquisitions, with another $113m offer pending. ChemChina has embarked on at least $2.5bn of deals, not including the Syngenta purchase, according to Dealogic. Both companies have also closed several acquisitions of undisclosed value.
Both groups and their chief executives have repeatedly denied plans for the corporate combination in the past and declined to comment for this article.
Nonetheless, several senior bankers close to the groups and their leadership say the State-owned Assets Supervision and Administration Commission, the government entity that controls the two companies, plans to combine them to form a chemicals group with total revenues of $100bn.
Asked about the merger, Sasac head Xiao Yaqing said: “I have not yet seen news reports about this.”
Senior corporate and investment bankers in Asia say they will soon vie for the combined group’s business. Lower-ranking employees at both companies say they are preparing for a merger — or seeking jobs elsewhere in anticipation of consolidation.
ChemChina’s handling of the Syngenta deal was received poorly by China’s top leadership, say people familiar with the matter. While the strategic nature of the merger dovetails with China’s efforts to buy foreign technology and improve its agricultural yields, group chairman Ren Jianxin made enemies by initiating the deal without full clearance from the country’s most important decision makers.
Mr Ren has proved to be a relentless dealmaker. After creating ChemChina from a number of state-owned chemicals plants, his deals over the past five years have included a €7.3bn buyout of Italian tyremaker Pirelli.
Merging ChemChina and Sinochem pits him against another of China’s most high-profile executives, Sinochem chairman Ning Gaoning, for control of the merged group. Mr Ning, who goes by the English name Frank, rose to prominence among leaders of state-owned companies as an aggressive dealmaker for Cofco, the state grain trader.
Mr Ning put Cofco on the map with a number of international deals, including the buyout of Dutch grain trader Nidera and Asian grains trader Noble. He transferred to Sinochem last year.
In addition to the clash of personalities, the merger would incorporate two radically different corporate cultures.
Founded as a trading group during the US embargo of China in the 1950s, Sinochem is now a slow-moving state conglomerate with decision-making by consensus and several business arms with little integration. By contrast, ChemChina has operated like a state enterprise in name only, instead functioning as an aggressive private business under Mr Ren’s 30-year leadership.
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