M&A

Getting a bounce

Sinochem deal to make it number one in rubber

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Ning: an acquisitive guy

When 17 year-old Thio Siong Soe landed in Medan in the Dutch East Indies in 1907, the Fujian native was leaving behind a country where the Qing Dynasty was in its death throes and poverty was widespread. He hoped to create a better life for himself in Southeast Asia.

Thio decided to try his hand in an industry that had been growing rapidly over the past two decades – rubber production. In 1895, the British had introduced the first rubber tree to Malaya and plantations soon spread across Southeast Asia where a warm, wet climate proved suited to the cultivation of the H Brasiliensis tree.

The Asian rubber trade decimated the indigenous Brazilian industry, but it enabled Thio to make his fortune after he established his first plantation, NV Handel Maatschappij En Rubberfabrik Hock Li in 1934. Last week, its links with the Chinese mainland were reestablished after its current owner, Singapore-listed Halcyon Agri, was purchased by state-owned Sinochem.

The S$550 million ($407 million) takeover represents Sinochem’s first significant M&A transaction since the prolific dealmaker Frank Ning Gaoning was appointed chairman in January (see WiC311), although negotiations began before he took the helm. Under the terms of the all-cash deal, Sinochem is buying a 30.07% stake from five major shareholders, and will make a mandatory general offer for the whole group.

At the same time, Halycon is merging with Sinochem-controlled GMG Global, which is also listed in Singapore. Finally Sinochem will inject its remaining rubber assets into Halycon to create the world’s largest rubber manufacturer and supplier, with potential sales of 2 million tonnes per annum and revenues of $2.3 billion.

However, Malaysia’s Edge magazine says the current number one producer, Sri Trang Thai, looks set to respond. Sources close to the dual Thai- and Singapore-listed group say it plans to expand its sales to two million tonnes as well.

The rubber industry has been suffering a supply glut thanks largely to Thailand, which became the world’s largest producer in 1990 and has spent the past 20 years turning over land to rubber. Prices are now at seven-year lows. The SICOM RSS3 forward contract, for example, is trading at around 1.259/kg compared to 1.90/kg a year ago.

Last year, the Thai military tried to push prices up by bulk buying from producers. A group of leading producers also attempted to restrict physical deliveries to SICOM – the Singapore-based exchange – to push prices up. More recently, Thailand, Indonesia and Malaysia agreed to cut exports by as much as 50%.

For Sinochem, the acquisition is a strategic long-term play. Many wonder which industry Ning Gaoning will target next and how he will transform the sprawling state-backed group into a more market-oriented and global player.

As Beijing Orient Agriculture consultant Ma Wenfeng tells the Financial Times, “Ning’s personality and history is all about harnessing capital. If Sasac has placed him at Sinochem it’s because they want to take that approach to expand the company.”

During his roughly decade-long tenure at COFCO Ning turned the food company into a global agri-resources giant through a series of M&A deals. In 2015, it rose in the Fortune 500 rankings from 401 to 272.

His new company sits in 105th spot with revenues of Rmb496 billion ($76.92 billion) in 2014 and assets of Rmb355 billion. Sinochem is extremely diversified, with a presence in industries including: oil and gas (where it is the country’s fourth largest player); agricultural input products such as seeds (Monsanto’s exclusive Chinese partner), pesticides and fertilisers (via Hong Kong-listed Sinofert); and chemicals, logistics and property via Hong Kong-listed China Jinmao.

Cai Xiyou the group’s former president was placed under investigation for “disciplinary violations” in February, shortly after Ning’s arrival. One company Ning will be paying attention to will be domestic rival ChemChina, which is attempting to close an acquisition that makes the Halycon Agri deal look minor by comparison. If it is successful, ChemChina’s $43 billion takeover of Swiss-owned seeds and chemical group, Syngenta will represent China’s largest-ever outbound M&A deal.


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