MOSCOW (MRC) -- Chinese state-owned chemical companies Sinochem Group and ChemChina are in discussions about a possible merger to create a chemicals, fertilizer and oil giant with almost USD100 B in annual revenue, three sources familiar with the matter said, reported Reuters.
The deal has been proposed by China's central government as part of its efforts to slash the number of state-owned companies and create larger, more competitive global industry players, said the sources.
The sources asked not to be identified because they were not authorized to speak publicly about the matter. Top management of the two firms held a meeting earlier this week to discuss a potential merger, said one source directly briefed on the matter.
"The government has given the mandate to let Sinochem lead in this potential merger with ChemChina," said the source.
A second source familiar with the matter said both firms have started due diligence work looking into each other's financial details and business segments.
While still at an early stage, the talks come as China National Chemicals Corp, as ChemChina is officially known, finalizes a USD43 B takeover of Swiss pesticides and seed group Syngenta. That deal would be China's largest-ever foreign investment.
If approved, the ChemChina-Sinochem merger would be among the largest between two Chinese state-owned enterprises, following similar marriages that created shipping giant China Cosco Shipping Corp, train maker CNR-CSR and more recently, the tie-up between Baosteel Group and Wuhan Steel.
Combining the two companies, which make everything from refined oil products to latex gloves and insecticides, would propel it into the top echelons of the competitive global chemicals, fertilizer and oil industries.
It would be a major global chemical giant and challenge domestic rivals Sinopec, PetroChina and CNOOC, said Michal Meidan, London-based China analyst with Energy Aspects.
As MRC informed before, in late June 2016, Rosneft CEO Igor Sechin and China National Chemical Corporation Chairman Ren Jianxin signed Heads of Agreement for cooperation in respect of Far Eastern Petrochemical Company (FEPCO) project.
ChemChina produces special chemical materials, basic chemicals, oil refining, agricultural chemistry, rubber products, and chemical equipment.
Sinochem Group engages in energy, agriculture, chemicals, real estate, and finance service businesses in China and internationally. It is involved in the exploration and production, refining and trading, warehousing and logistics, and distribution and retailing of oil and gas. The company also produces and distributes fertilizers, such as nitrogen, phosphate, potash, and other fertilizers.