Sinochem International’s shares rose their daily maximum of 10 percent on Thursday after the company’s parent company, China’s largest chemical company, received approval to merge with its main domestic competitor.
The state-owned Commission for the Supervision and Management of Assets, or Sasac, overseer of the industrial corporations backed by China’s central government, said Wednesday it would create a new holding company to support Sinochem Group and China National Chemical Corp, also known as ChemChina take over.
The move, which has been debated for years and will create an industrial powerhouse with annual sales in excess of Rmb1tn ($ 152 billion), is Beijing’s recent drive to create state-backed champions to challenge international leaders.
“The merger could help [China’s chemical industry] Dealing better with domestic expansion pressures from overseas industry giants, ”Shanghai-based Huachuang Securities said in a report. “It will allow China to play a bigger role in the global energy, chemical and agricultural industries.”
Sinochem and ChemChina began merger talks back in 2017 when Beijing tried to consolidate centrally controlled state groups to make them more competitive.
The negotiations came as global chemical companies led by BASF and Dow Chemical went on a buying spree to improve efficiency.
“The merger of Sinochem and ChemChina follows the global trend that evaluates economies of scale,” said a researcher from the CCID group, a think tank of the Chinese Ministry of Industry and Information Technology.
While the newly created powerhouse will achieve economies of scale, analysts are wondering whether the combination of two groups with very different growth models creates synergies.
An analyst at a research center under Sasac said that ChemChina’s focus on traditional chemicals and SinoChem’s strength in foreign trade indicated that it may take some time for the two groups to find “similarities”.
“It is easy for Sinochem and ChemChina to join forces as they report to the same boss [the government]”The analyst said.” The real challenge is to get them to work together more efficiently. “
Additional coverage from Sherry Fei Ju