ChemChina edges closer to sealing Syngenta deal

01.06.2017

Chinese group’s buyout of seed maker set to turn country into agrichemical powerhouse

ChemChina has tendered about 95 per cent of the shares in Swiss seed and pesticide maker Syngenta, inching closer to the finish line of the $44bn deal that is set to transform China into an agrichemical powerhouse.

Announcing the definitive end results for its offer on the company, ChemChina said it planned to continue to buy shares in order to push its holdings above a required 98 per cent in Syngenta, at which point it can cancel outstanding shares.

The cross-border buyout, China’s largest to date, has dragged on since it was first announced in February last year, hitting several regulatory snags in Europe and the US as well as concerns over ChemChina’s ability to pay for Syngenta.

In April, Syngenta CEO Erik Fyrwald said the deal would close by June.

ChemChina allayed some concerns over the longer-term financing for the deal last week when it announced that it had issued $20bn in perpetual bonds and preference shares to pay for acquisition.

Bank of China became the largest financier of the buyout, with the bank purchasing $10bn in perpetual bonds from ChemChina, according to a US regulatory filing. China Reform Holdings, a $30bn fund launched by the central government last year, picked up $7bn in perpetual bonds and China’s Industrial Bank bought $1bn in perpetual bonds.

Perpetual bonds are a hybrid financing instrument that will probably be treated partly as equity on ChemChina’s balance sheet.

Morgan Stanley, the only foreign bank among the investors in the new deal, bought $2bn in convertible preference shares. ChemChina’s equity stake in the deal remained at $5bn, according to the filings.

Two consortiums of Chinese and foreign banks, led by China Citic Bank International and HSBC, came together early last year to provide bridge financing for the buyout. But ChemChina’s small equity contribution to the deal has long raised concerns for the group’s ability to shoulder the heavy debt burden.

The acquisition of Syngenta by ChemChina has major implications for food security in China. The country is eager to bring home new technologies for genetically modified crops, fertilisers and pesticides, and the deal fits that overall demand to boost its capabilities in those areas.

During the 16-month life of the deal, regulatory issues have drawn out the process.

In January, the European antitrust regulator pushed its review back 10 working days to April 12 to discuss proposed divestments from Syngenta businesses in Europe. The following month, a US commission extended its antitrust evaluation of the deal.

An expected merger between ChemChina and Chinese rival Sinochem also cast some concern on the completion of the Syngenta acquisition. That merger, which would create one of the world’s largest chemicals groups, will probably take place in 2018, the FT has learnt from senior bankers in the region.


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