Deal would create world's largest rubber firm
A subsidiary of Sinochem Group has offered to buy a majority stake in Halcyon Agri Corp, a Singapore-based rubber company, in a deal that would form the world's largest natural rubber supply chain manager.
A Singapore-based unit of the Chinese oil and chemicals conglomerate has offered to acquire a 30.07 percent stake in Halcyon Agri for S$0.75 ($0.55) a share, according to a stock exchange filing posted by Sinochem International Corp on Monday.
Sinochem International Corp is the listed arm of Sinochem Group at the Shanghai Stock Exchange.
The all-cash deal will be worth at least S$240 million, the filing said.
After a series of transactions including share issues and share swaps between Halcyon Agri's investors and Sinochem subsidiaries, Sinochem will become the majority shareholder in Halcyon Agri.
The deal is expected to be completed in the second half of this year and will be subject to reviews by a number of government agencies in several countries.
The announcement came after another State-owned chemical giant, China National Chemical Corp, spent $8 billion to buy Italian tire maker Pirelli in 2015.
Sinochem said natural rubber is a strategic resource that relies on imports. The company is taking the opportunity brought by low rubber prices in recent years to expand its scope through industry-wide consolidation, it said.
Sinochem also said the deal would create the world's largest natural rubber supply chain manager, with combined revenue exceeding $2.3 billion and annual rubber processing capacity of 1.5 million tons.
Following a cyclical high in 2011, prices for natural rubber have fallen over the last five years, said a research note by China Galaxy Securities posted on news portal qq.com on Monday.
The low prices have caused supply to dwindle and it is expected that natural rubber prices will rebound within two years, the research note said.
However, investors appear to have been unimpressed by news of the deal, with Sinochem's shares falling 4.73 percent on the Shanghai bourse on Monday to close at 10.28 yuan ($1.58) per share. The broader Shanghai Composite Index edged down 0.73 percent on Monday.
China's lack of high-quality rubber products such as tires is an impediment to the country's industrial development, an industry insider who declined to be named told the Global Times Monday. The insider deals with industrial trucks, which require top-grade tires.
Wu Chenhui, an independent analyst, said that the company's plan follows one of the main current trends: the pursuit of scale through mergers and acquisitions on a global scale.
"Despite concerns over efficiency, working to become one of the world's biggest producers of a certain type of industrial product or material is still a sensible move for large Chinese companies," Wu told the Global Times on Monday
Sinochem Group, formerly China's monopoly oil trader until 1993, has diversified into chemicals, oil and gas exploration, and real estate development, according to Reuters.
