China approves merger of Sinochem and ChemChina

09:18 AM | April 1, 2021 | Kartik Kohli

The government-owned Assets Supervision and Administration Commission (SASAC; Beijing, China) has approved the merger of Sinochem Group and China National Chemical Corp. (ChemChina). China's State Council and the two state-owned companies will carry out a restructuring, under which Sinochem and ChemChina will become subsidiaries of a new holding company that will be established and wholly owned by SASAC on behalf of the State Council. The new holding company has not been named and a timetable for the restructuring has not been given.

Sinochem says the joint restructuring will create synergies, “build up a world-class chemical company, and promote a high-quality development of the chemical industry in China.” It says that the worldwide chemical industry is highly concentrated and dominated by large enterprises. “In recent years, global chemical giants have undergone consolidation to create large-scale chemical companies which play a leading role in chemicals R&D and product innovation.” The new holding company will optimize resource allocation, strengthen innovation, and stimulate business growth, Sinochem adds.

Sinochem and ChemChina have combined assets estimated to be worth about $245 billion. ChemChina has estimated assets of about 874 billion renminbi ($133 billion) and Sinochem has assets of about 710 billion renminbi. The companies together have a wide range of activities that include oil and refining, petrochemicals and other basic chemicals, agriculture, and specialty chemicals. Other interests include life sciences, materials science, environmental science, rubber and tires, machinery and equipment, real estate, and industrial finance.

Discussions about a merger between Sinochem and ChemChina date back to 2016, when ChemChina announced it would acquire Syngenta for $43 billion, a deal that was completed in 2017. Ning Gaoning became chairman of both companies in 2018, and in November 2019 confirmed they were still exploring a merger. In early 2020, the companies announced plans to consolidate their ag assets under Syngenta.

William Chen, executive director/olefins, Asia at IHS Markit, says that the merger has taken so long partly due to US–China tensions. Separately, there have been press reports about possible US national security concerns regarding the merger, focused on Syngenta.

Chen says that Sinochem is making slow investments in its chemical business. “Sinochem’s key business is real estate, though it has invested in base chemicals in recent years,” he says. Chen adds that in the coming years, Sinochem plans to increase investment in olefins production, including steam crackers and propane dehydrogenation (PDH) units, and that ChemChina will continue to focus on derivatives and specialty chemicals. Sinochem started up a world-scale cracker and derivatives complex at Quanzhou, China, in 2020.

According to Sinochem, the new holding company will deepen synergies with ChemChina and “achieve breakthroughs in key materials and technologies, provide agricultural materials and comprehensive agricultural services, and promote carbon neutrality.”

Chen says that Sinochem’s refinery, cracker, and PDH businesses and ChemChina’s plastics, rubbers, and tires businesses have potential synergies that can help them to extend the value chain. “ChemChina also has methionine and silicone businesses, which are profitable and good additions to the merger,” he says.