China approves mega-merger

6th April 2021

China approves mega-merger

China’s State-owned Assets Supervision & Administration Commission (SASAC) has approved the long-planned merger of the two state-owned chemical giants, Sinochem and ChemChina. This will be done by creating a new holding company, owned by SASAC, with the two operating as separate subsidies.

The new firm will be by far the largest chemical producer in the world, with combined assets worth $245 billion, considerably more than BASF and Dow combined. Its activities will range from basic chemicals to specialities, biosciences, materials science, basic chemicals, environmental science, rubber and tyres and machinery equipment, among other things.

“This joint restructuring will create synergy, build up a world-class chemical company and promote a high-quality development of the chemical industry in China,” Sinochem said. “The New Holding Company will further optimise resource allocation, strengthen innovation and stimulate business growth.”

“Particularly, [it] will endeavour to broaden and deepen the synergies among such sectors, achieve breakthrough in key materials and technologies, provide high quality agricultural materials and comprehensive agricultural services, promote carbon neutrality and become the innovation-driven respected leader of such sectors.”

Ning Gaoning, who has chaired companies both since 2018, has sought to change their central business to focusing on higher value-added chemicals and materials. The result has been the $43 billion acquisition of Swiss agrochemicals firm Syngenta by ChemChina in recent years.

The two have already begun combining their agricultural and chemical assets, the former under the Syngenta name. However, they have done little in terms of consolidating their energy assets, which were not even mentioned in the announcement. Some have questioned whether these will play a role at all going forward.

Another potential obstacle to the stock market listing Gaoning is seeking is the high and growing debt level both firms have, partly as a result of buying Syngenta. Projected growth in domestic sales have failed to reach expectations and the Chinese ambassador to Switzerland has openly labelled the buy a mistake. There is speculation that the agricultural part will be listed separately to reduce debt while still maintaining a majority stake, while some believe that this business might be sold.

Falling foul of US regulatory scrutiny has been another major issue. ChemChina and Sinochem were both added to a Pentagon blacklist of companies alleged to have links to the Chinese military under the Trump administration, putting them at the risk of heavy sanctions. While this fear may have receded under a new administration, if any were to be imposed it would be disastrous for Syngenta and its owners.

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