Market Updates

ChemChina & Sinochem - Next Probables for Giant Merger

December, 2018

Since last few years, the market leaders in chemical industries have been merging or acquiring in mega-deals which are changing the industry dynamics. In the midst of mega deals in the US-based companies, the Chinese companies are moving towards giant merger. It has been rumored since last two years, that ChemChina and Sinochem are expected to merge to create a new company with financial assets worth more than $100 billion.

Ning Gaoning, who is also known as Frank Ning in the western world, chairman of Sinochem group was named as chairman of ChemChina in July earlier, while Ren Jianxin retired. As per the information, Ning was tasked with studying the two companies for overlap areas, synergy options, and possible spin-off/stake sale opportunities by understanding two companies. The merged entity would have businesses across sectors of agriculture, chemicals, refinery, energy, real estate, and finance.

Timelines & Regulatory Approvals

The Chinese authorities have already given preliminary approvals to the for the merger of two state-owned companies. As per the analysts’ comments, the merger was not expedited, to ease the acquisition financing for Syngenta deal fearing tighter review of European regulatory approval committee. However, with Syngenta deal completed last year, and Ning formally taking over chairmanship for both companies, the possibility of merger announcement is more likely to be made sooner than later. However, in light of last month chemical plant explosion in subsidiary of ChemChina, the merger news might be delayed addressing the current issue and penalties first.

Staked Assets & Expectations

The combined entity, which shall again be a state-owned company, is expected to have more than $100 billion worth assets with exposure into multiple areas ranging from energy to chemical to agriculture. There are some talks for stake sale or spin-off in some areas which might include some overlap areas in two companies. The Syngenta stake sale was already on cards post few years of acquisition since initial days which adds to the plausible stake sales. Further, the combined entity is expected to gain more synergy based on sheer size of business, increasing competitiveness against global competitors. On financial terms, the merger and discussed sale proceeds are expected to ease the high funding pressure which was taken to acquire Syngenta in $43 billion deal.

The Sinochem has more than 300 subsidiaries with operations in multiple areas, while ChemChina has expanded the base in last decade with series of acquisitions both domestic and foreign. Overall, the combined entity, whenever it comes into existence, is expected to shake not only China’s chemical industry but is expected to impact the global market.

– Ankur Kalra, Manager
Chemicals & Materials,
Infoholic Research