Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Syngenta AG's triple identity crisis just cost it a $7 billion bond sale.

The agrochemical firm, which was looking to raise funds to refinance part of its $43 billion takeover by state-owned China National Chemical Corp., or ChemChina, had to postpone the issue, according to Bloomberg News.

Put the delay down to three confusions.

For one, while Syngenta may still walk and talk like the A-rated Swiss borrower it used to be, its debt no longer has the aura of safety to lure European and U.S. institutions that manage money for widows and orphans. The problem is partly its own credit score. At BBB minus, S&P Global Ratings now has Syngenta one rung above junk.

A far bigger concern for investors, though, is that this relatively well-groomed Swiss Dorian Gray now has a slovenly lookalike in its attic -- one that just happens to be its new parent. The chart below shows two very similar lines, except that one is Syngenta's reassuringly high interest cover, and the other is ChemChina's worryingly elevated net debt-to-Ebitda ratio.

Lookalikes? Think Again
ChemChina's net debt-to-Ebitda multiple of seven shows high leverage. Syngenta's figure of 8.2 on the other hand corresponds to its comfortable interest coverage ratio
Source: Bloomberg

Still, for the right price, Syngenta could have attracted high-yield Asian investors more comfortable lending money to units of Chinese state-owned enterprises.

That was the second flap: To Asian buyers, the deal didn't appear local enough. That's because Syngenta isn't fully owned by ChemChina. Unless the Chinese firm buys out minority shareholders or guarantees Syngenta's notes, they won't get included in JPMorgan Chase & Co.'s emerging market bond indexes.

The third failure was that Syngenta's notes were covenant-lite, meaning they didn't place iron-clad terms on the borrower around restricting leverage or moving money from one entity to another. Asia's naive rich -- those who conflate a bond's coupon with free parking -- couldn't care less for covenants. But a $7 billion offer, among the biggest in Asia this year, is too large to feed entirely to private bank clients.

As for institutional investors in the region, China's rising indebtedness is causing buyers to be more wary when it comes to corporate and state-owned-enterprise debt. Six years ago, covenants restricting the behavior of borrowers were almost unheard of for SOE bonds; this year, they've been attached to one in four issues.

Promise Me Something, Anything
Amid wariness over a credit bubble in China, debt issues by state-owned enterprises increasingly come with restrictive clauses on borrowers' behavior
Source: Bloomberg

While that shift may be disappointing for Syngenta, it's probably a good thing for China's economy. Improving profits at the nation's biggest companies, including SOEs, could go some way toward reining in those worrying credit metrics.

A ChemChina-Syngenta that has to work a little bit harder to win investors' faith ought to be a bit leaner, and a bit fitter as well.

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

  1. Moody's Investors Service already rates Syngenta Ba2, or two levels below investment grade.

To contact the authors of this story:
Andy Mukherjee in Hong Kong at
David Fickling in Sydney at

To contact the editor responsible for this story:
Katrina Nicholas at