Exclusive: ChemChina seeks funding from Chinese state-backed firms ahead of Syngenta IPO - sources

By Julie Zhu and Kane Wu HONG KONG (Reuters) - China National Chemical Corp, or ChemChina, has approached Chinese state-backed investors for up to $10 billion (7.68 billion pounds) in funding as part of a reorganisation of its agrichemicals business ahead of a public float, according to five people familiar with the situation. The reorganisation includes Swiss giant Syngenta. The fundraising efforts and eventual stock market listing are designed to cut ChemChina's debts ahead of a long-awaited mega-merger with state-owned peer Sinochem

Reuters December 20, 2019 06:06:54 IST
Exclusive: ChemChina seeks funding from Chinese state-backed firms ahead of Syngenta IPO - sources

Exclusive ChemChina seeks funding from Chinese statebacked firms ahead of Syngenta IPO  sources

By Julie Zhu and Kane Wu

HONG KONG (Reuters) - China National Chemical Corp, or ChemChina, has approached Chinese state-backed investors for up to $10 billion (7.68 billion pounds) in funding as part of a reorganisation of its agrichemicals business ahead of a public float, according to five people familiar with the situation. The reorganisation includes Swiss giant Syngenta.

The fundraising efforts and eventual stock market listing are designed to cut ChemChina's debts ahead of a long-awaited mega-merger with state-owned peer Sinochem. Frank Ning, the chairman of both companies, has encouraged individual business units to tap capital markets ahead of any tieup, which has been in the works since 2016.

Executives from ChemChina and Sinochem have been involved in the approaches to potential investors, according to two of the sources, who have direct knowledge of the talks. They turned to fellow state-owned firms after some international investors shunned the offer as too expensive, the five people said.

Liang Xiaoliang, a corporate communication executive at ChemChina, described the Reuters' reporting as 'false information'. He Yujie, the general manager of Sinochem's legal department, said there was no factual basis to the reporting. Both companies declined to provide further details.

ChemChina wants to list Syngenta, the Swiss pesticide producer it bought for $45 billion in 2016, on China's technology-focused STAR market in mid-2020, according to fundraising documents dated from October.

The documents, sent to prospective investors, still represent the companies' current plans, according to two of the sources.

A possible listing on STAR, where company valuations are generally higher than on the main Shanghai Stock Exchange, has not previously been reported. Such a listing, if it met regulatory approvals, would be the chemical industry's biggest-ever IPO.

In order to secure a listing on STAR, ChemChina and Sinochem have created a holding company called SAS Holding (SAS) which will house assets including Syngenta, as well as majority stakes in Shenzhen-listed crop protection company Adama <000553.SZ> and Sinochem's fertilizer unit, known as Sinofert, according to the fundraising documents. The creation of SAS has not been previously reported.

Syngenta, Adama and Sinofert did not respond to Reuters' requests for comment.

SAS would enable Syngenta to trade on STAR because as a Shanghai-based holding company, it would be considered a domestic entity, one of the requirements for listing on the exchange. On its own, Syngenta would be considered a foreign company and ineligible, according to one of the people.

A WARMER RECEPTION

In return for $10 billion, ChemChina and Sinochem are looking to sell about 20%-30% of SAS by year-end and use the proceeds to repay debt ChemChina took on to fund the Syngenta deal, according to the fundraising documents. That range indicates SAS would be valued at upto $50 billion after the fundraising is complete.

Some international investors, however, balked at the offer, according to the five sources.

The problem centered on the implied valuation for Syngenta, likely to comprise the biggest component of SAS, according to the fundraising documents.

ChemChina leveraged up to buy the Swiss giant, creating a global player in agrichemicals and driving the Chinese company's debt levels to around 10 times EBITDA at the end of 2018, according to figures from Moody's rating agency.

The acquisition, China's largest overseas deal, was described as a mistake by China's ambassador to Switzerland in a Swiss newspaper interview published in June.

To entice funding, ChemChina and Sinochem have cut the asking price, according to two people with direct knowledge of the discussions and have turned to state-backed investors including banks, insurers and other financial groups in the hope of a warmer reception.

ChemChina and Sinochem are now offering these state-backed investors shares that would value SAS at about $30 billion, according to one of the people with direct knowledge of the talks. That price tag would imply a large drop in the estimated valuation of Syngenta.

Reuters could not determine what the implied valuation of Syngenta would be in the event SAS was valued at $30 billion as it is not clear exactly what proportion of SAS it would represent.

"State investors are generally under pressure from the government or banks to support firms seen as national champions. China has supported the Syngenta acquisition and would not like to see the IPO fail," said Andrew Collier, managing director of Orient Capital Research.

The state-owned Assets Supervision and Administration Commission (SASAC), the primary regulator of Chinese state-owned companies, did not respond to a request for comment.

In addition to seeking fresh funding, ChemChina has also asked some of its creditors from the Syngenta deal, including Bank of China and state-owned investor China Reform Holdings, to swap some of their debt in ChemChina for equity in SAS, three sources said. ChemChina initially took on nearly $33 billion in loans to complete the Syngenta acquisition.

Bank of China and China Reform Holdings did not respond to Reuters' requests for comment.

ChemChina and Sinochem will miss their self-imposed year-end deadline to close the fundraising, said the two people with direct knowledge of the matter, and are now aiming to complete it in the first half of 2020.

(Additional reporting by Arno Schuetz in Frankfu, Cheng Leng, Dominique Patton, Lusha Zhang and Beijing Newsroom in Beijing; Editing by Jennifer Hughes and Carmel Crimmins)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.