ChemChina Acquires 12% Stake in Swiss Commodity Trader Mercuriaby and
Investment paves way for further energy expansion: ChemChina
Mercuria investment latest in wave of China commodity deals
China’s largest chemical company acquired a 12 percent stake in Mercuria Energy Group Ltd., giving the Swiss commodity trading house better access to the world’s biggest market for raw materials.
Through the investment in Mercuria, “ChemChina will expand further into the energy sector," China National Chemical Corp. Chairman Ren Jianxin said in an e-mailed statement on Monday. “Mercuria has growth opportunities ahead in China and around the world.”
The agreement marks the culmination of talks first reported in October and adds to ChemChina’s western investments that already include Italian tire maker Pirelli & C. SpA. The deal comes as ChemChina enters talks to acquire Swiss pesticide and seeds maker Syngenta AG in what could be the biggest-ever purchase by a Chinese company.
The deal will also allow the closely held trading firm’s owners, which include Swiss co-founders and former Goldman Sachs Group Inc. bankers Marco Dunand and Daniel Jaeggi, to monetize a portion of their holdings. The terms of the transaction weren’t disclosed.
The ChemChina investment reaffirms Mercuria’s “growth potential,” CEO Dunand said in the joint statement from the two companies. “ChemChina has important expertise and global reach.”
The agreement follows an increase of investments by Chinese state-controlled companies into commodity trading houses.
Cofco Corp., China’s biggest food company, agreed last month to pay at least $750 million for the 49 percent stake in Noble Agri Ltd. it didn’t already own. Cofco purchased 51 percent of the Noble Group Ltd. agriculture unit for $1.5 billion in 2014. Cofco paid another $2 billion for a controlling stake in Dutch trader Nidera that same year.
The stake in Mercuria, one of the five biggest independent oil traders, adds to China’s commodity investments as it continues to snap up more raw materials than any other nation to feed its economy. It also comes after the price of oil fell below $28 a barrel as Iran moves to restoring exports after the lifting of sanctions. Commodity returns have declined to their lowest level since at least 1991.
For commodity traders like Mercuria, however, low prices and high volatility offer opportunities to profit. Rival Trafigura Pte Ltd. doubled earnings from oil trading to a record $1.7 billion in 2015.
The deal with ChemChina will deepen Mercuria’s already extensive ties to China, where it’s one of the largest foreign importers of fuel oil. Han Jin, another of Mercuria’s founders, is a Chinese national who has overseen Mercuria’s expansion in the Asian nation and was a key driver of the deal.
The trading house agreed in September to sell a 51 percent interest in its Henry Bath & Sons metals-warehousing business to Beijing-based CMST Development Co. for about $60 million. Three years earlier Mercuria sold a 50 percent stake in Vesta Terminals, an oil-storage business, to a unit of state-owned China Petroleum & Chemical Corp. for 128.6 million euros ($140 million).
Based in Cyprus with major trading operations in Geneva and Houston, 11-year-old Mercuria has expanded to more than 1,000 employees and has been profitable every quarter since its inception, according to its website.
It purchased the bulk of JP Morgan Chase & Co.’s physical commodity trading unit for about $800 million in 2014.
ChemChina is one of China’s largest state-owned businesses with a sprawling asset portfolio that includes chemical manufacturing, oil processing, and tire and rubber products.