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October 15, 2016

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ChemChina and Sinochem in talks on possible merger

CHINA’S state-owned chemical companies Sinochem Group and ChemChina are in discussions about a possible merger to create a chemicals, fertilizer and oil giant with almost US$100 billion in annual revenue, three sources familiar with the matter said.

The deal has been proposed by China’s central government as part of its efforts to slash the number of state-owned companies and create larger, more competitive global industry players, said the sources.

The sources asked not to be identified because they were not authorized to speak publicly about the matter.

Top management of the two firms held a meeting earlier this week over a potential merger, said one source directly briefed on the matter.

“The government has given the mandate to let Sinochem lead in this potential merger with ChemChina,” said the source.

A second source familiar with the matter said both firms have started due diligence work looking into each other’s financial details and business segments.

When asked about a potential merger, a ChemChina spokesperson said: “There is no such thing.”

A Sinochem spokesman said he was not aware of the discussions. China’s State-owned Assets Supervision and Administration Commission, which oversees state-owned enterprises, did not comment when asked about the talks.

While still at an early stage, the talks come as China National Chemicals Corp, as ChemChina is known, finalizes a US$43 billion takeover of Swiss pesticides and seed group Syngenta. That deal would be China’s largest-ever foreign investment.

Syngenta declined to comment on the news.

European Competition Commissioner Margrethe Vestager would not comment on any potential issues arising from the deal, were China to create a domestic chemicals, fertilizer and oil giant.

“It’s very early days,” she said yesterday.

The European Union is expected to rule on the deal by October 28.

It was not clear why the talks were happening before the ChemChina-Syngenta deal had been finalized, or whether it would create further problems with anti-trust regulators around the world which have been looking at that deal.

Beijing may have initiated the talks to create a stronger, larger player to make it easier to absorb a world-class company like Syngenta, said the source directly briefed on the matter.

Backing from Sinochem might help ChemChina finance its Syngenta deal on more favorable terms, the source said.


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