July 4, 2019 / 3:23 AM / 7 months ago

Breakingviews - ChemChina vexes Beijing’s bureaucrat dealmakers

The logo of Swiss agrochemicals maker Syngenta is seen on a farm in the village of Geispitzen, France June 27, 2017. REUTERS/Arnd Wiegmann

HONG KONG (Reuters Breakingviews) - Beijing’s bureaucrats are exposing their investment-banking deficiencies. In an odd public display of buyer’s remorse, China’s envoy to Switzerland has slammed ChemChina’s $43 billion takeover of Syngenta. It hints at the complex politics of such deals. The reaction also calls into question orchestrated mega-deals involving state-owned titans.

Geng Wenbin, China’s man in Bern, said the 2017 acquisition would not have gone through had he been on the scene a year earlier, according to an interview with a local newspaper. “If Switzerland wants Syngenta back, I would convince ChemChina to sell it,” he said. “But is there anybody at all in Switzerland who wants Syngenta back?” If so, the price just went down.

Chinese government officials rarely express such criticism, but Syngenta is an unusual case. While ChemChina is a state-owned enterprise, the man who spearheaded the acquisition, Ren Jianxin, is more free-wheeling entrepreneur than risk-averse civil servant. The Swiss seeds producer was the largest among his many deals, including taking control of Pirelli in a transaction that valued the Italian tyremaker at roughly $8 billion.

Empire-building came at a cost: ChemChina’s debt, adjusted for various items, stood at an eye-watering 12 times EBITDA in 2017, according to Moody’s Investors Service. The multiple has fallen, but only to about 10 times at the end of last year. That the massive overseas purchase occurred just as China embarked on a deleveraging drive didn’t help. Following media reports that Ren may not have fully cleared the deal in Beijing, he was replaced last year by Sinochem Chairman Ning Gaoning. 

The personnel move amplified expectations that another transaction was in the works: to combine Sinochem and ChemChina. Big mergers are challenging for even the most business-savvy executives, and the ambassador’s analysis may prove correct. It does, however, raise concerns about Beijing’s broader dealmaking nous.

China’s two biggest shipbuilders said this week they are planning to unite, the latest in a string of state-owned M&A. In theory, there should be plenty of efficiencies in such mergers. But if authorities are fretting over the Syngenta acquisition – a strategic one that seemed in part designed to help provide food security – it is reasonable to wonder whether the rest of the deal pipeline will fare much better.


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