Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

ChemChina's acquisition of Syngenta in the nation's biggest overseas deal raised the question -- whatever happened to Sinochem, the other chemicals giant, and one with a much more significant agricultural business?

While ChemChina bought Adama Agricultural Solutions of Israel in 2011, it was always stronger in chemicals than in agriculture. Sinochem makes most of its revenue from chemicals and rubber, but it's also the nation's biggest supplier of fertilizers, seeds and agrochemicals, including Monsanto's Roundup herbicide.

Agricultural Revenues Rise
Sinochem's revenue from agrochemicals climbed while core rubber and chemicals declined

In Xi Jinping's hunt for Chinese food security, Sinochem, rather than ChemChina, was the logical buyer of Syngenta, the world's largest pesticide maker and one of a handful of companies that dominate genetically modified crops. Like ChemChina, Sinochem -- the nation's monopoly oil trader until 1993 -- has pesticides, but it has much more that makes it akin to the Swiss company.

Sinochem is the biggest shareholder in a Hong Kong-traded fertilizer producer, Sinofert. As well as dominating seed sales, it develops seed technology -- the rationale for the Syngenta deal, as China tries to develop a GM industry in the face of shrinking arable land and deteriorating soil. Sinochem is the exclusive partner of Monsanto, which abandoned its own plan for a $46 billion takeover of Syngenta in August. The company also holds stakes in big Chinese herbicide and pesticide manufacturers.

Yet Sinochem has been quiet on the world stage, as ChemChina clinched deal after deal, including the biggest overseas purchase last year, of Italy's Pirelli. (Sinochem's current deal is tiny: the move to acquire Singapore rubber firm Halycon Agri, which has a market value of $298 million.)

Quiet for Now
Sinochem's overseas acquisitions ($)

Until a couple of years ago, Sinochem was the big buyer. It purchased Asian herbicide businesses from Monsanto during the 2008 financial crisis, and built out seed technology at home. Sinochem and ChemChina made separate unsuccessful bids for Nufarm, Australia’s biggest supplier of farm chemicals, in 2009.

The next year, Sinochem started preparing an offer for Canada's Potash Corp.  When the Canadian government nixed BHP Billiton’s $40 billion approach to Potash on national-security grounds, Sinochem pulled out.

Sinochem could have been one of the world's top agricultural companies. Instead, that distinction went to ChemChina, whose chairman, Ren Jianxin, built stakes in 10 overseas companies since 2005, starting with Belgium's Drakkar Holdings.

A low profile might suit Sinochem for now. Revenue fell in the third quarter to $13,3 billion, from $20.7 billion a year earlier, and the president, Cai Xiyou, was last week placed under investigation for so-called serious discipline violations (Cai is also chairman of Sinochem's real estate unit, China Jinmou.) The company is burning through cash: Operating and capital spending exceeded the value of cash receipts by $1.88 billion at the end of the third quarter, according to data compiled by Bloomberg.

On the Hunt
ChemChina's overseas acquisitions ($)

Chinese state acquisitions tend to be driven by acquisitive chairmen, however, rather than internal finances -- ChemChina's $133 million in negative cash flow didn't stand in the way of bank funding for the Syngenta purchase.

In January, Sinochem appointed former Cofco Chairman Frank Ning as chairman. Under Ning, Cofco bought the Dutch trading firm Nidera and purchased 51 percent of the Hong Kong trading firm Noble's agricultural arm for $1.5 billion. (Cofco last month said it was buying out the rest, reportedly at half what it paid last year).

For the next big steps in China's food-security quest, watch Sinochem.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net