Sinochem and CHEMCHINA clarify whether the reverse

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Sinochem and CHEMCHINA clarify whether the "reversal" of merger rumors can be staged again

can Sinochem China Chemical clarify the "reversal" of merger rumors be staged again

October 19, 2016

[China paint information]

although the listed companies under the two groups have clarified the merger rumors, under the background of the central enterprise integration of "becoming stronger, better and bigger", if Sinochem and CHEMCHINA really carry out the reorganization and merger, they will create a chemical giant comparable to BASF, the world's largest chemical giant

with regard to the recent merger rumors between Sinochem Group (hereinafter referred to as "Sinochem") and China National Chemical Corporation (hereinafter referred to as "Sinochem"), the listed platforms of the two companies issued a Clarification Announcement on the evening of October 16, saying that "no merger notice has been received from government departments". The wording and expression are very similar to the previous clarification announcement made by CNR, WISCO and Baosteel before merging and sorting out the measured data. In the context of the integration of central enterprises, will the "drama" of first clarifying and then merging be staged again on the two chemical giants

analysts pointed out that as the two giants in the field of domestic pesticides and chemical industry, Sinochem and CHEMCHINA have a high degree of overlap in many main businesses. Under the background of central enterprise integration of "becoming stronger, better and bigger", if Sinochem and CHEMCHINA really carry out reorganization and merger, they will create a chemical giant comparable to BASF, the world's largest chemical giant

listed companies clarify the merger rumors

the short message "Sinochem and CHEMCHINA may merge" released by Bloomberg on October 14 has attracted widespread attention in the domestic capital market and the media. On the evening of the 16th, a number of listed companies under the two companies have issued clarification announcements denying the merger

Sinochem International (), a listed subsidiary of Sinochem Group, said in the announcement: up to now, the actual controller of the company, Sinochem Group, the company and its controlling shareholders have not received written and oral information from any government departments about the above rumors; Sinochem Group has not expressed such intention to any department or enterprise. The announcement of listed companies of CHEMCHINA is largely similar to the above content

Bloomberg News said, "the leadership of the two chemical groups had talks on the merger intention at the beginning of last week." Caixin quoted an insider as saying, "China National Chemical Corporation is indeed possible to discuss the merger and reorganization with Sinochem, but there is no exact plan at present."

in an interview with 21st Century Business Herald on October 17, a spokesman for China National Chemical Corporation replied that "there is no such thing, thank you for your attention"; Relevant personnel of Sinochem Group did not make any response

Sinochem Group was founded in 1950, and its predecessor was China National Chemical Import and Export Corporation. At present, Sinochem is also one of China's four major national oil companies and the largest integrated management enterprise of agricultural inputs (fertilizers, seeds, pesticides). At the end of 2015, the total assets were 354.6 billion yuan and the total revenue was 381.2 billion yuan, ranking 139 in the 2016 Fortune Global 500

China National Chemical Industry Group is a state-owned enterprise established on the basis of the enterprises affiliated to the former Ministry of chemical industry. Its main business is the production of chemicals. At present, it has six business segments, including new chemical materials, special chemicals and basic chemicals. It is necessary to identify whether they can be occupied by the rest of the order. According to the official data, the revenue of CHEMCHINA in 2015 was US $45billion (about 303.2 billion yuan). Ranked 234 in the 2016 Fortune Global 500. As of the first half of 2016, the total assets of China National Chemical Corporation were 384billion yuan

although the two groups clarified the rumors through listed companies, the shares of the two companies reacted strongly to the rumors. Sinochem International () closed the daily limit at 10.57 yuan/share from 14:30 p.m; Sinochem fertilizer () rose 6% to close at HK $1.06 per share. Analysts said that investors who have long paid attention to the integration of central enterprises may have optimistic expectations about the merger prospects of the two companies. Careful investors can easily find that the wording of the Clarification Announcement on the evening of the 16th is quite similar to the previous clarification announcement issued before the merger of CNR, Baosteel and WISCO

previously, CNR, Wuhan Iron and Steel Co., Ltd. and Baosteel had very similar paths in the disclosure of merger information, both of which were "hearsay clarification merger". First came the rumors that the two peer companies were about to merge, then the listed companies clarified and refuted the rumors, and finally both sides issued an announcement confirming the reorganization and merger at the same time. Before the merger of Wuhan Iron and Steel Group and Baosteel, in more than a year, the two listed companies clarified and refuted rumors for many times, and finally the plot reversed

"in my opinion, the possibility of the merger of these two companies is still very large," Ma Wenfeng, an analyst at Oriental egger, believes that at the moment of overcapacity in the chemical industry and the downturn in bulk commodities, even international giants DuPont and Dow Chemical merged into one at the end of last year. As the two giants in the field of domestic agrochemical industry, CHEMCHINA and SINOCHEM have a high degree of overlap in the businesses of pesticides, fertilizers, seeds and so on. If they are restructured and merged, they will greatly reduce the competitive advantages of the same industry and complement each other, further integrate the domestic agricultural industrial chains of pesticides, seeds, fertilizers and so on, and greatly enhance the international competitiveness of Chinese agrochemical enterprises

in the view of Li Jin, a state-owned assets expert, from the merger of CNR and CSR to the merger of Wuhan Iron and Steel Group and Baosteel, it has gone through the process of refuting rumors, clarifying them, and finally confirming them. Therefore, the clarification of subsidiaries such as Sinochem International cannot completely rule out the possibility of reorganization and integration of the two "chemicals"

"from the analysis of the integration logic of strengthening, optimizing and expanding central enterprises, there will be cases of reorganization and merger in other industries except steel, nuclear power and shipping in the second half of the year," Li Jin said. "Relevant leaders of the SASAC have recently made it clear that the total number of central enterprises managed by the SASAC will drop to less than 100 by the end of the year. After the merger of Wuhan Iron and Steel Group and Baosteel, there are still 103 left, that is, there is room for further integration."

or affect the merger and acquisition of Syngenta by CHEMCHINA

but if the two "CHEMCHINA" really carry out the reorganization and merger process, the ongoing merger and acquisition of Syngenta, an international giant, by CHEMCHINA may be affected, and the process may slow down again

on February 3 this year, when the global agrochemical industry and bulk commodities fell into a cold winter, CHEMCHINA publicly made a takeover offer to Syngenta, one of the six largest agrochemical and seed industry giants in the world, with an equity consideration of $43billion (more than 280billion yuan)

Syngenta is a giant of agrochemical seed industry headquartered in Switzerland. It is the world's largest company in the field of pesticides and the third largest company in the seed industry, with the most comprehensive pesticide product line. In fy2015, Syngenta's total revenue was $13.4 billion, including $10.005 billion in pesticide sales, accounting for about 20% of the global market share; The sales volume of seed business is 2.838 billion US dollars, accounting for about 6% of the global market share

as soon as the news of this sky high price M & A, known as "snake swallows elephant", 1 was issued, it attracted widespread attention in domestic and foreign capital markets. According to previous media statistics, CHEMCHINA needs to raise US $50.4 billion to complete this acquisition, including 25 billion equity financing and 25.4 billion debt financing

since this M & a transaction needs to pass the approval and antitrust review of multiple regulatory authorities at home and abroad, CHEMCHINA has extended the deadline of the offer to November 8 for three consecutive times. On August 22, the transaction was approved by the U.S. Commission on foreign investment (CFIUS). On September 23, CHEMCHINA submitted the antitrust review document to the European Commission, and the ruling result is expected to be reached on October 28

a lawyer familiar with the M & a transaction told the 21st Century Business Herald that the acquisition of Syngenta by CHEMCHINA has now entered the final stage, and at this time, China is unlikely to restructure and change CHEMCHINA, the transaction subject. The biggest possibility is to integrate and digest after the acquisition is completed. "Now the EU's approval results will come out soon. At this juncture, restructuring or the introduction of new investors, or changes in the transaction structure and subject, will trigger the anti-monopoly process, and the anti-monopoly process may have to start again." The lawyer said

Qiu Xiaofeng, an analyst at Galaxy Securities, and others previously analyzed and finally said that CHEMCHINA had established a globally competitive seed and agrochemical enterprise through mergers and acquisitions of Syngenta and other companies. The pesticide business accounts for 23% of the global market share, and the seed business accounts for 6% of the market share. After eating Syngenta, the total assets of CHEMCHINA will double to more than 700billion yuan

however, it should also be pointed out that the leverage ratio of all cash payment of equity consideration used by CHEMCHINA is very high, and its long-term high debt level has also caused financial institutions and others to worry about the risk of this M & a transaction

the financial report shows that from 2013 to 2015, the asset liability ratio of CHEMCHINA was 84.63%, 81.47%, and 81.03% respectively. As of the first half of 2016, its debt ratio was still about 80%, and its total debt exceeded 300billion yuan. This has weakened the long-term solvency of CHEMCHINA to a certain extent, and also affected its space to continue debt financing. The debt level of Sinochem Group is only about 66%. Coupled with its strong overseas financing and operation management capabilities, if it can be merged with CHEMCHINA into one, it will greatly enhance the financing and competitive strength of the new Big Mac

if the merger comes true, in terms of the total assets of the merger, the "two" merger will become one of the largest state-owned enterprise reorganization and merger cases this year together with Wuhan Iron and Steel Group and Baosteel. According to the financial report, the total revenue in 2015 was as high as 680billion yuan, which can easily compete with BASF, the world's largest industrial chemicals manufacturer. BASF's total revenue in 2015 fell 5% year-on-year to 70.4 billion euros (about 520.6 billion yuan)

Ma Wenfeng also stressed in the interview that from the perspective of food security and improving the competitiveness of domestic agrochemical enterprises, the possible merger of CHEMCHINA with Syngenta, Sinochem and CHEMCHINA has more important strategic significance

"but in the end, it still needs time to verify whether Sinochem and CHEMCHINA can smoothly come together." Ma Wenfeng said

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