China is planning to abandon the megadeal of state-owned groups ChemChina and Sinochem that once aimed to create one of the world’s largest chemicals conglomerates.
The merger process, which has been years in the making, has been beset by challenges in bringing the two management teams together, including clashes between senior executives, according to two people close to the matter.
The companies have also struggled to determine how a change in ownership of a number of global ChemChina assets, such as Swiss agrochemical giant Syngenta, would be treated by US national security watchdogs. Relations between Washington and Beijing have deteriorated in recent years, with the two countries engaged in a fierce trade war and rising geopolitical tensions.
The challenges have led a working group responsible for the merger to prepare to abandon the plan to combine the sprawling assets of both companies, according to the people familiar with the matter. However, one of the people noted that the process had not yet been totally scrapped.
Instead, Sinochem would probably attempt to take over several of ChemChina’s most valuable assets, in what would be a much smaller acquisition process than originally planned.
However, in July last year, ChemChina chairman Ren Jianxin, who led the $44bn takeover of Syngenta two years earlier, retired and Mr Ning was appointed chairman of ChemChina while retaining his role at Sinochem.
The simultaneous chairmanship at two of the world’s largest chemicals groups by Mr Ning, who goes by the English name Frank, was viewed as an extraordinary move and a sign that the merger was moving forward as planned. The experienced state-enterprise boss once led government-controlled grain trader Cofco and made several overseas acquisitions during his time at the group.
Talk of a merger between the companies has been mooted since 2016, following ChemChina’s buyout of Syngenta, the largest Chinese outbound acquisition of a foreign company in history.
The deal was viewed as highly controversial within the Chinese government given the amount of leverage needed to complete the transaction. The state-guided merger with Sinochem is said to have been an attempt at reining in control over ChemChina, which is operated more like a private enterprise under the direction of Mr Ren.
The FT has reported that Mr Ren, who built ChemChina from scratch after taking over a number of bankrupt state-owned chemicals plants in the 1990s, fought against the plan to merge the companies. Mr Ning has also pushed back against the deal over concerns about ChemChina’s massive debt load following a multiyear global acquisition spree.
In the three years following the Syngenta buyout, global sentiment towards Chinese overseas acquisitions has also soured. The US and several other countries have since bolstered their screening of Chinese buyouts of sensitive technologies, resulting in far fewer Chinese-led deals.
A change in ownership of ChemChina’s global businesses could open up opportunities for foreign governments to re-evaluate its overseas assets because of security concerns. Concerns about this process are one reason why a full merger is expected to be abandoned, said a person close to the matter.
ChemChina and Sinochem did not respond to requests for comment.