Ning Gaoning on How Sinochem bought Syngenta

On the largest overseas acquisition by a Chinese company, the "J.P. Morgan of China" shares his experience in a new book.

Ning Gaoning became President of China Resources Enterprise Limited in 1990 and Vice Chairman and President of China Resources (Holdings) Co., Ltd., the parent and a major state-owned company in China, in 1996. Then, after 11 years as CEO of the state-owned China Oil & Foodstuffs Corporation (COFCO), Ning served as CEO of Sinochem Group, another state-owned giant, starting in 2015 and of ChemChina beginning in 2018. When the two major state-owned chemical giants merged to form Sinochem Holdings Corp. Ltd. in 2021, Ning became chairman of the company, serving until his retirement in 2022.

During his illustrious career leading several major Chinese state-owned enterprises (SOEs) across various industries, Ning Gaoning became best known for hundreds of mergers and acquisitions, earning him the nickname "Chinese J.P. Morgan." In 2024, he published his book, 三生万物 Three Produced All Things, in which he details COFCO's acquisitions of overseas grain enterprises and Sinochem's acquisition of Syngenta.

The publisher of Ning's autobiography has kindly permitted Pekingnology to translate and publish an excerpt of his book, also available on the official WeChat blog of Zhenghe Island, a Chinese network platform for elites.

The East is Read, our sister newsletter, has published another excerpt of his book.

Ning Gaoning: how Chinese SOEs buy out foreign firms

宁高宁：我亲历的几次并购

Ning Gaoning: Several Mergers and Acquisitions I Experienced Firsthand

Lessons Learned from Sinochem's Acquisition of Syngenta

When discussing M&As, Syngenta’s case is hard to overlook, as it remains the largest overseas acquisition by a Chinese company, totaling over $43 billion. Syngenta, a Swiss company with over 200 years of history, is a global leader in agrochemicals (pesticides and seeds) and represents advanced standards in global agricultural development.

For years, Syngenta had been a target for acquisition in the global chemical industry. Firstly, because it lacked a majority shareholder, pension funds held its equity. Secondly, Monsanto, another agrochemical giant, had repeatedly attempted to acquire Syngenta, leading to instability within Syngenta. Additionally, Syngenta's internal adjustments and strategy changes led to a significant decline in its market share in the U.S. seed market.

When news broke that Syngenta's board was considering an equity sale, several companies, including COFCO, initiated official contact with Syngenta, hoping to acquire it.

However, Monsanto bypassed Syngenta's board and directly proposed a purchase plan to its shareholders, offering a 30% premium over the then-market trading price. Without a more compelling offer, a transfer of Syngenta's ownership seemed almost inevitable.

ChemChina proposed an acquisition plan through a competitive mechanism at that moment, persuading Syngenta's board to accept and sign an acquisition agreement. After the agreement was signed, issues arose with meeting conditions like financing and transaction timelines.

Only then did Sinochem step in with the intent to complete the acquisition in partnership with ChemChina, aiming to create a world-class, technologically advanced Chinese chemical company. The plan was first to acquire Syngenta, then proceed with the merger of ChemChina and Sinochem, followed by Syngenta's re-listing.

The first two steps have been successfully completed, but Syngenta's re-listing is still underway. This re-listing is significant, not only for financing purposes but, more importantly, to return Syngenta to the stock market, allowing it to consider additional overseas listings to maintain its status as an international company. I believe this step is essential for its long-term international competitiveness.

The strategic purpose of acquiring Syngenta extends beyond simply operating in its original market. China's agriculture sector needs upgrading and advanced technology, and Syngenta is decades ahead of China. If Syngenta's technology can be extensively applied in Chinese agriculture, it could accelerate China's agricultural modernization, providing Syngenta with a broader market while bringing China closer to international standards in the agricultural inputs segment.

In the past, when talking about China's agriculture, besides continuous improvements and increased yields, there were always frequent mentions of lagging technology, low overall output, high water usage, and excessive use of fertilizers and pesticides. The hope is that acquiring Syngenta will speed up technological advancements in these areas. Thus, the success of the Syngenta acquisition will ultimately be measured not only by its operational performance and profitability but also by its ability to operate effectively in China and elevate the country's overall agricultural standards. Currently, Syngenta's expanding presence in China's seed, pesticide, and fertilizer markets appears to be a positive trend.

Looking back, the commercial logic behind acquiring Syngenta was to acquire high-quality assets, particularly technical capabilities, and expand their value in China.

ChemChina's acquisition of Syngenta triggered a wave of restructuring in the global chemical industry. After Monsanto failed to acquire Syngenta, it was acquired by Bayer for $66 billion. DuPont and Dow Chemical merged and later split into three companies, with their agricultural divisions combining to form Corteva Agriscience. BASF, the only major chemical company not involved in mergers, capitalized on the opportunity by acquiring parts of Bayer's agricultural assets divested due to antitrust requirements. ChemChina and Sinochem emerged as a world-class chemical company by asset size through this industry restructuring.

From that point, the global chemical industry landscape was reshaped. On the surface, it seemed like a chaotic reshuffle, but there was logic behind it. The restructuring was guided by two principles: first, specialization, with further segmentation within the chemical industry—separation of commodity chemicals and fine chemicals; and second, a shift toward more technology-intensive, high-end chemicals.

Bayer even sold its profitable materials business, Covestro, to acquire Monsanto. When I asked Bayer's chairman why they sold such a lucrative business, he explained that Bayer saw limited R&D prospects in materials and aimed to fully transform into a biochemical company, moving away from traditional chemicals, which Chinese companies had mastered. Bayer's goal was to focus on developing research-driven, high-tech products.

This vision was ambitious but fraught with challenges. Bayer's acquisition of Monsanto was followed by class-action lawsuits over herbicides, resulting in over $10 billion in settlements and a nearly 50% drop, or around €40 billion, in its market value. The CEO faced intense shareholder scrutiny and even litigation, ultimately leading to his early retirement in 2023.

Despite the setbacks, Bayer has truly transformed, with its balance sheet now focusing only on pharmaceuticals, agriculture, and nutrition, establishing it as a top-tier biochemical company. This transformation is undoubtedly courageous and resolute.

Bayer's acquisition of Monsanto, which significantly reduced shareholder value, has been labeled one of the worst M&A deals in recent years. It remains uncertain when Bayer might reclaim its former prominence, making a comeback as a newly transformed biochemical enterprise, as the cost of this transformation has proven to be steep. Strategic upgrades demand both foresight and courage; when executed well, they are pioneering, but when rushed, they can be fatal.

A critical aspect of acquiring Syngenta was financing. Given the substantial acquisition cost, the options, costs, and structure of financing posed challenges from the outset. Equity financing was essential for an acquisition of this scale; similarly, Bayer financed its Monsanto acquisition through a share issuance.

At that time, ChemChina lacked the capacity for equity financing. Given the overseas nature of the acquisition, the optimal approach for debt financing was through international channels to minimize exchange rate risks. However, this required a solid capital base as a foundation.

After Sinochem joined the acquisition, the expanded asset base boosted their financing capacity. The Bank of China, after thoroughly assessing the acquisition's details and future prospects, was the first to support the deal. This led to forming a three-tier syndicate, combining domestic and international loans and bonds to complete the financing.

In fact, all acquisitions face a test—whether the investment can secure reasonably priced financing through project loans with limited capital and without additional guarantees. This is because the lender evaluates the investment from multiple risk perspectives, and if they are unwilling to lend, the acquirer should think twice.

The History of Winland Investment Limited

I recall back in 1989 when I was at China Resources in Hong Kong, there was a small listed company called Winland Investment Limited, with a market value of only 20 million Hong Kong dollars. Despite its size, Winland Investment later became the predecessor of China Resources Enterprise, China Resources Beer, and China Resources Land—all of which eventually became constituents of the Hang Seng Index.

Winland Investment's sole asset was a 7,000-square-meter piece of industrial land in Kwai Chung, Hong Kong, along with an abandoned factory building on it, left unusable due to contamination. After I took on the role of general manager of Winland Investment, I became responsible for the redevelopment of this site.

Since the land belonged to a publicly-traded company, I didn't want to request loan guarantees from the parent group. Personally, I also felt that shareholders should not be expected to guarantee loans for a listed company. Therefore, my team arranged for approximately 500 million Hong Kong dollars in project financing for this venture.

The lender was Japan's Sanwa Bank, and Winland Investment pledged the land, construction contract, and working capital to secure funding. Sanwa provided loans in tranches based on project milestones—a model known as "milestone-based financing." Additionally, future revenue from property sales was pledged to the bank.

It is fair to say that the reconstruction was carried out entirely under the bank’s supervision, and one can imagine the considerable complexity this approach entailed. However, the benefit was that the company assumed the project's risks independently, so even if repayment issues arose, only the bank would be impacted—not China Resources Group as a whole.

After the project was completed, it proved highly successful, with Winland's profits increasing by over 500 million Hong Kong dollars—marking the "first pot of gold" for China Resources Enterprise.

The new building was named "Riley House," and it was upon this building's completion that China Resources Group announced the renaming of Winland to China Resources Enterprise and unveiled its "China Concept" aimed at expanding into the Chinese Mainland. Naturally, many more stories followed from there.

Although Winland's name changed, its legacy was honored. In the newly renovated China Resources Enterprise office, the most important meeting room was named the "Winland Room" in tribute. Many pivotal decisions for the company's growth were made in this room. As China Resources Enterprise continued to grow and evolve, I wonder if the Winland Room still exists today.

Ning Gaoning: how Chinese SOEs buy out foreign firms