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Genetically modified

3 Feb 2016 By Quentin Webb

Never mind Franken-Foods: ChemChina’s takeover of Syngenta will need Franken-Financing. If successful, the Chinese group’s near-$44 billion purchase of the world’s top agribusiness company would be a real milestone, even by the increasingly acquisitive standards of the People’s Republic. It will also call for a monstrous funding package both in Switzerland and back home.

China National Chemical Corp is moving fast under Chairman Ren Jianxin. Last year he ploughed $7.7 billion into Italy’s Pirelli. Already this year he’s taken a stake in Mercuria, the commodity trader, and snatched German machinery-maker KraussMaffei. Now Ren is offering 480 Swiss francs a share for Syngenta. The outlay would total roughly $46 billion, including $2.6 billion of net debt.

To get a sense of Ren’s boldness, consider this: Thomson Reuters data records just a handful of cash takeovers that have topped $40 billion, including Anheuser-Busch, AT&T Wireless, Genentech, TXU and Alcan. And there have been just three $40 billion-plus deals involving private buyers: Dell-EMC, Heinz-Kraft, and the disastrous leveraged buyout of U.S. utility TXU. Excluding acquisitions in Hong Kong, the Syngenta offer is also worth nearly as much as China’s four biggest outbound takeovers to date combined.

Though HSBC and CITIC Bank are providing acquisition financing, the question is how to fund it all longer-term. Syngenta itself could shoulder some of the burden. Analysts expect EBITDA for the coming year to total a little over $2.8 billion. Cranking debt up to a buyout-style 6.5 times EBITDA would let the target assume $15.8 billion more in bonds and loans. That looks doable, if not cheap. Seven-year bonds issued by U.S.-listed Platform Specialty Products, a similarly indebted chemicals group, yield about 12 percent.

That just leaves ChemChina needing to scrape together the remaining $28 billion to complete the deal, which values Syngenta at more than 16 times EBITDA. The group had cash of 29.8 billion yuan ($4.5 billion) as of end-September, and total debts of roughly 232 billion yuan, filings show. So it will need the help of China’s big banks. These lenders in turn can tap the Shanghai bond market or wealthy individuals through so-called wealth management products. Banks will draw comfort from the fact the buyer is wholly owned by China’s central government. Even then, its financing package looks genetically modified.




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