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* Sinochem, ChemChina in $100 bln merger talks - sources
* Merger would ease ChemChina funding ...
* ... as it looks to wrap up big Syngenta acquisition
* Beijing said to be orchestrating chemicals mega-merger
By Carol Zhong and Umesh Desai
HONG KONG, Oct 17 A possible merger with fellow
Chinese state-owned group Sinochem could bring welcome relief to
debt-laden chemicals giant ChemChina as it looks to wrap up its
$43.5 billion acquisition of Swiss-based seeds company Syngenta
Led by its chairman Ren Jianxin, a dynamic entrepreneur in
the monochrome world of Chinese state-controlled enterprises,
ChemChina has aggressively bought assets at home and abroad,
including last year's $7.7 billion purchase of Italian tyre
maker Pirelli and this year's bid for Syngenta, China's biggest
But these bold buys have left China National Chemical Corp,
popularly called ChemChina, highly leveraged.
Reuters reported last week that Sinochem and ChemChina are
in talks about a possible merger to create a chemicals,
fertiliser and oil giant with almost $100 billion in annual
revenue. Both companies denied the merger plans.
"The (ChemChina and Sinochem) merger is positive to our
loan, because Sinochem is much stronger financially than
ChemChina," said a Chinese banker directly involved in
ChemChina's $12.7 billion bridge loan backing the Syngenta
acquisition. "ChemChina has been buying assets abroad more
actively than Sinochem, so it's more financially stretched."
ChemChina had accumulated debt of $37.5 billion on June 30,
as well as two bridge loans worth nearly $33 billion to help
finance the Syngenta deal.
By contrast, Sinochem, which employs more than 50,000 people
in China, has outstanding debt worth $11.55 billion and annual
operating revenue last year of around $60 billion, according to
Thomson Reuters data and the company's website.
"If Sinochem and ChemChina merged it would create a larger
entity, more strategically important to the government, making
it more likely to be supported in the Syngenta deal," said Kalai
Pillay, senior director at Fitch Ratings. "It would be highly
credit positive, as it would give more access to funding."
According to one former Sinochem senior official, the merger
is being orchestrated by Beijing to improve ChemChina's
financing prospects, which are weakened by the Syngenta deal,
rather than a desire to reform China's chemicals industry.
"Sinochem's financials are better than ChemChina's. (A
merger) will also be beneficial to ChemChina's equity raising
for the Syngenta buy," said a person at a government-backed fund
which is involved in Chinese outbound mergers and acquisitions.
ChemChina has won the green light for its takeover of
Syngenta from U.S. regulator CFIUS, which vets foreign takeovers
for potential security concerns. The Chinese group is now trying
to clear antitrust approval with the European Union, with a
decision expected by Oct. 28.
The European Commission is looking to approve the merger
after ChemChina and Syngenta offered to make concessions to
overcome antitrust concerns.
Neither the U.S. nor EU regulator singled out debt as a main
concern in the antitrust review.
But the high debt burden puts a strain on ChemChina's cost
of funding going forward, something that could be addressed if
it merges with a financially stronger partner, bankers say.
If its agreed bid for Syngenta fails, ChemChina faces paying
an unusually high $3 billion break-up fee.
"The loan contract has already been signed. We are waiting
for the (ChemChina/Syngenta) deal to get final regulatory
approvals before the facility can be drawn," the Chinese banker
Some bankers said Beijing will be careful not to jeopardise
the Syngenta deal with any last-minute changes to its structure
that could draw unwanted regulatory scrutiny.
"There's no way they can start merger talks before wrapping
up the Syngenta deal," said a senior Hong Kong-based banker who
has worked with both the Chinese companies.
"They will have to disclose the plans to global regulators
and it will be a breach of trust if they fail to do so."
($1 = 6.6685 Chinese yuan renminbi)
(Reporting by Carol Zhong and Umesh Desai, with additional
reporting by Denny Thomas, Julie Zhu and Yan Jiang; Writing by
Lisa Jucca; Editing by Ian Geoghegan)