The Chinese state-owned company Chemchina bought the seed and crop protection producer from Basel in 2017 and took it off the stock exchange.
(Photo: Reuters)
Zurich, Frankfurt The prospects of an IPO of the seed and crop protection giant Syngenta in Shanghai at the end of the year are increasing. The technology exchange Star has resumed the formal process for the initial listing of the Bayer competitor, as can be seen on the website of the exchange operator. At the beginning of last week it became known that the stock exchange had temporarily suspended the process for Syngenta’s initial listing. The reason for this was apparently delays in processing documents submitted at short notice.
This avoids the danger for the time being that some formality will mess up the schedule of the multi-billion dollar IPO. The Chinese state-owned company ChemChina currently holds 100 percent of the shares in the Basel-based group. ChemChina wants to sell part of the shares, among other things, to collect fresh money for Syngenta’s expansion in China.
Syngenta has officially announced an IPO as its target by mid-2022. But internally, according to Handelsblatt information, CEO Erik Fyrwald is pushing the initial listing until the end of the year. The leap onto the trading floor must be successful by mid-December, otherwise the company has no choice but to postpone the IPO until next year. Syngenta would then have to submit fresh financial figures for the full year 2021, which would further delay the entire IPO process.
Some investment bankers have doubts that the IPO will be successful by the end of the year, mainly because of the uncertainty surrounding the crisis at the Chinese real estate company Evergrande. The impending bankruptcy of the largest Chinese real estate developer is fueling concerns about a financial crisis in the Middle Kingdom. Foreign investors in particular are reacting increasingly cautiously because of the difficult-to-predict interventions by the Chinese government. In addition, failure to pay interest from Evergrande on bonds held by foreign investors has shaken investor confidence.
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In corporate circles, however, they are confident that the Evergrande crisis will not jeopardize the company’s IPO. The IPO is primarily aimed at Chinese investors, which is why only Chinese banks are responsible for the IPO process. Only a small tranche could be placed with institutional investors from abroad, for example with sovereign wealth funds. A second listing on the stock exchange in Zurich or London is likely, but at a later point in time.
Strategic importance for China
In addition, the latest interventions by the Chinese government so far have been directed against excesses in the real estate market and against overpowering digital corporations such as Alibaba. Syngenta, on the other hand, is of strategic importance to the Chinese government. For the Communist Party, securing food production and supplying the Chinese meat industry with animal feed such as soy is a high priority. The state-owned company ChemChina therefore bought the seed and crop protection producer from Basel in 2017 and took it off the stock exchange.
As part of the reorganization of the state-dominated Chinese chemical industry, ChemChina spun off its own crop protection and seed business and integrated it into Syngenta. With the IPO in Shanghai, Syngenta wants to collect 65 billion Renminbi, the equivalent of around ten billion dollars.
According to financial circles, Syngenta is aiming for a valuation of 50 to 60 billion dollars. Syngenta could come close to the market value of Bayer, which is still struggling with the integration of the US seed giant Monsanto.
For its part, however, ChemChina relies on Syngenta’s high rating. The state-owned company had paid $ 43 billion for the Basel company and also brought in its own business. On stock exchanges such as Zurich or London, however, Syngenta would have had great problems achieving a rating above the purchase price of 2016, says an investment banker. With the initial listing on the Shanghai Technology Exchange, Syngenta is also pursuing the goal of being rated more like a tech company.
In the first half of 2021, Syngenta generated earnings before taxes (Ebitda) of 2.7 billion dollars, 22 percent more than in the same period of the previous year. Even if Syngenta can maintain growth in the second year, an above-average rating of eleven to twelve times the Ebitda is necessary in order to reach the 60 billion mark.
For comparison: Bayer is valued seven to eight times Ebitda after the Monsanto takeover, US competitor Corteva with twelve times Ebitda. In business circles, however, one refers to the growth opportunities in China, which justify a higher valuation. But a stock market quake triggered by Evergrande could destroy the plans.
More: Agrochemical giant Syngenta is growing rapidly in China.