A $43 billion deal that is the largest-ever foreign takeover by a Chinese company may be facing unexpected money problems, according to recent news reports.
Earlier this year, the state-backed China National Chemical Corporation, or ChemChina, successfully bid $43 billion to acquire Syngenta AG, a Swiss-based biotechnology firm known for its seed and chemical business.
See related: “Weeding out competition: Farmers left paying steep prices as seed firms merge”
But a Chinese news outlet recently reported that ChemChina’s deal for Syngenta might be facing a major holdup because of financial uncertainties. Caixin Media Company Limited reported that investors have expressed concern that ChemChina lacks the full funding to back its all-cash acquisition of Syngenta.
According to Caixin — which cited private documents as well as “people close to the negotiations” — ChemChina could be struggling to put together a significant $15 billion chunk that’s part of financing the deal.
See related: “Cotton industry looms large in Bayer-Monsanto deal”
The financial structure of the deal rests largely on loans and its success now likely hinges on support from the Chinese government, Caixin reported.
“We have no comment to make on this article and ChemChina is proceeding with their refinancing strategy,” A Syngenta spokesperson told Reuters. “Bridge financing for the transaction is committed and irrevocable.”
Since ChemChina and Syngenta reached an agreement in February, American farmers have voiced concerns over what a China-owned pesticide and seeds business would mean for their crops.
“I’ll have to say that I’m not really keen on China getting a foothold on American agriculture,” said Norbert Brauer, a Midwestern grain farmer and president of the Illinois Farmers Union.
China’s foothold on American agriculture is already sizeable.
In 2013, China halted U.S. corn imports after it detected a portion of grain shipments had an unapproved trait. That unapproved trait came from a variety of Syngenta corn seed approved in the United States but not in China. The disruption cost the corn industry up to an estimated $3 billion, according to the National Grain and Feed Association.
Darrell Hoemann/Midwest Center for Investigative Reporting
The Syngenta AG facility in Tuscola, Ill., on Dec. 9, 2014.
In September, U.S. officials filed the 23rd complaint against China over trade violations with the World Trade Organization.
Some farmers worry that a Chinese takeover of Syngenta — a popular seed and pesticide choice for American farmers — will lead to possible conflicts of interest or favoritism down the road.
Historically, China has been slow to approve new biotechnology traits. Skeptics are concerned that Chinese officials might sign off on ChemChina-Syngenta traits more freely than those of its competitors.
“I know there’s some concern especially on the ChemChina-Syngenta merger that because ChemChina is a kind of state-run organization, it would maybe somehow have more market power,” said Tamara Nelsen, senior director of commodities for the Illinois Farm Bureau.
But if the deal results in fair competition, Nelsen said the merger could also help U.S. farmers in the long-run.
“I think it’s possible the ownership of Syngenta by ChemChina may facilitate more of a predictable approval process in China for biotech crops because they’ll have their own stake in the game,” Nelsen said. “It might also help with some of the more politically driven bans we’ve had on U.S. corn, soybeans and other products.”
The U.S. Senate Judiciary Committee held a hearing on consolidation within the seed and chemicals sectors on Sept. 20. During the hearing, Syngenta AG CEO Erik Frywald told lawmakers that strong cross-licensing agreements between competitors would prevent Chinese favoritism.
Although Syngenta competes directly with Monsanto, DuPont and other seed firms, it and other companies often borrow traits from one another via special open licensing deals aimed at maintaining innovation. For example, some Syngenta seeds contain traits developed by Bayer AG and Monsanto.
ChemChina, which is headquartered in Beijing, has a history of being active in international mergers and acquisitions. Before striking a deal with Syngenta in February, ChemChina had finalized takeover deals with at least nine leading industrial companies based in France, the United Kingdom, Israel, Italy and Germany.
Since 2004, ChemChina has increased its value six-fold, according to Caixin.
The European Union originally announced that it would rule on the ChemChina-Syngenta deal by Oct. 28.
ChemChina reportedly did not submit sufficient antitrust concessions to EU regulators when given the chance leading up to the deadline, though. That decision contributed to Syngenta shares plummeting by more than 9 percent. ChemChina is now reportedly ready to offer concessions to gain EU approval, but the back-and-forth could push the deal’s completion into early 2017 if regulators decide to launch a longer investigation.
In addition to its merger with Syngenta, ChemChina is also in discussions with another Chinese state-owned chemical company, Sinochem Group. A three-party combination of ChemChina, Syngenta and Sinochem would possibly create the largest industrial chemicals company in the world in terms of sales.