Mercuria Said in Talks With China’s SDIC to Sell Up to 20% Stake

Mercuria Energy Group Ltd. is in talks to sell as much as a 20 percent stake to China’s State Development & Investment Corp., according to two people familiar with the matter.

The people, who asked not to be identified discussing private negotiations, didn’t say how much Mercuria would raise through the sale. Chief Executive Officer Marco Dunand said last month a deal worth as much as $1 billion could be completed by the end of March, without naming the buyer.

Mercuria, which was founded in 2004 and is now the fourth-largest independent commodity trader, has been seeking a strategic partner to buy a stake of 10 percent to 20 percent for more than a year. Introducing SDIC as an investor would bring Mercuria connections in China, the world’s largest commodity consumer.

The Geneva-based trading house is simultaneously in exclusive negotiations to buy JPMorgan Chase & Co.’s physical commodities unit, said one of the people. Mercuria aims to complete the JPMorgan deal before finalizing terms of an agreement with SDIC, this person said.

Mercuria was founded by former Goldman Sachs Group Inc. traders Dunand and Daniel Jaeggi. By selling a stake to an outside investor, Mercuria is taking a different path to raise cash than other closely held trading houses like Trafigura Beheer BV and Gunvor Group Ltd., which have issued bonds to raise capital.

China Ties

Beijing-based SDIC had assets of 311.5 billion yuan ($51.4 billion) at the end of 2012, according to its website. The state-owned enterprise, which holds investments in power, coal, food and agriculture, posted operating revenue of 89.1 billion yuan for that year.

The trading firm already has operations in Beijing and Shanghai and sold half its oil terminals business to a subsidiary of China Petroleum & Chemical Corp., the country’s biggest refiner, for 128.6 million euros ($177 million) in 2012.

Mercuria is seeking a partner with “industrial expertise” or different skills than that of the trading company, Dunand said in January. Benoit Lioud, a Geneva-based spokesman for Mercuria, declined to comment. A Beijing-based spokeswoman for SDIC wasn’t available to comment.

Metals Warehouses

The trading company will try to reach an agreement with JPMorgan on the purchase of its physical commodities unit by the end of the month, one person said. The JPMorgan business had $3.3 billion of physical assets, a person familiar with the process said in January. Mercuria beat out private-equity firm Blackstone Group LP and Australia’s Macquarie Group Ltd. to win the right to exclusive talks, people familiar with the matter said earlier this month.

The JPMorgan business would give Mercuria physical crude, petroleum products, power and natural gas trading portfolios in the U.S. as well as oil infrastructure assets in North America. The unit also owns metals warehouses, including Henry Bath & Son Ltd. operations that would complement Mercuria’s metals-trading operations.

Mercuria, which posted a $343 million profit in 2012 on revenue of $98 billion, has been expanding its trading of metals, gas, power and agricultural products over the past 18 months. In September, it invested $50 million in Romanian gas producer Amromco Energy Srl to boost its business in eastern Europe.

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