Caixin
Oct 09, 2016 07:52 PM
M&A

ChemChina Subsidiary's Acquisition of Syngenta Hits Snag

(Beijing) — A crucial $15 billion piece of funding is still missing in the complex financial structure that China National Chemical Corp. (ChemChina) plans to use in its mega-acquisition of Swiss agribusiness giant Syngenta AG, according to several people close to the deal.

The proposed $43 billion takeover is the biggest overseas offer ever made by a Chinese company. It has received attention worldwide in part because it needs the approval of Chinese, American and European authorities, and also because of the complexity of the financing.

China National Agrochemical Corp.(CNAC), a wholly owned subsidiary of ChemChina, will use a three-layered structure involving six special-purpose vehicles to raise capital for the deal, according to documents from the company that have been seen by Caixin.

Investors that are to provide loans to the plan include bank consortiums led by HSBC and Citic, according to the documents.

The cornerstone to the highly leveraged financing arrangement — one that the rest of the financing depends upon — is $15 billion to be injected into CNAC, according to company documents.

But it remains unclear who will provide these funds, according to people close to the bank lenders. They insisted on anonymity because they are not allowed to comment on the acquisition.

Based on the latest documents related to the financing structure, which may be revised, none of the investments will come from ChemChina itself or its subsidiaries.

A report by Bloomberg in September said China's state-owned Assets Supervision and Administration Commission and the Silk Road Fund will each provide $10 billion to support the acquisition. It cited the information from dealReporter, an equities news and data service provider.

But people from both government bodies told Caixin they were not considering such investments.

Nevertheless, the Chinese government will want to see the deal completed one way or another, according a person close to Syngenta. Yet it's hard to tell how it will be completed because ChemChina's financing plan still has uncertainties, he said.

State-owned ChemChina has only 11 billion yuan ($1.65 billion) in registered capital. It is heavily indebted with a debt-to-total assets ratio exceeding 80 percent at the end of March, according to its quarterly financial report.

"Under normal commercial conditions, it's impossible for a company with such a high leverage ratio to raise funds at such a large scale," a person close to the situation said.

The proposal has cleared one regulatory hurdle after the Committee on Foreign Investment in the U.S., or CFIUS, gave it a green light in August. It still needs approval from the Chinese government and European Union's anti-trust authorities ahead of an extended deadline of Nov. 8.

Failure to get the approvals would lead to ChemChina paying fines of at least $3 billion to Syngenta, according to the firms' earlier agreement.

Contact Wang Yuqian (yuqianwang@caixin.com); editor Ken Howe (kennethhowe@caixin.com)

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