Syngenta's five-year path to A-share listing has been pressed the pause button after several changes, and there is no hope of restarting for a while.
On March 29, 2024, Syngenta Group suddenly announced the withdrawal of its RMB65 billion main board IPO (initial public offering) application, less than a year after it withdrew its application for listing on the STAR Market in May 2023. The two withdrawals were related to the huge scale of the fundraising and the unsustainable A-share market, and the performance of Syngenta Group was also sluggish as the agrochemical industry entered a new downward cycle.
Syngenta Group's own helplessness lies in the fact that its "package" capital and debt restructuring and overall listing plan are difficult to "reinvent and reinvent" in terms of process, so it cannot simply spin off assets and list them to reduce the amount of financing. Syngenta Group, whose initial financial leverage is highly leveraged, has been dragged down by debt expenses, and China's GMO market, which it has high hopes for, has struggled to advance until the end of 2023.
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Syngenta's IPO journey from application to withdrawal
On March 29, the Shanghai Stock Exchange announced that Syngenta's IPO review was terminated due to the withdrawal of the main board IPO by Syngenta Group and its sponsors, and since then, the largest IPO since the IPO of Agricultural Bank of China in 2010 has been stranded.
Syngenta's IPO application on the main board of the Shanghai Stock Exchange was accepted by the Shanghai Stock Exchange in May 23, with plans to issue no more than 2.786 billion new shares and raise 65 billion yuan, and was confirmed by the Shanghai Stock Exchange's audit committee in June to meet the issuance conditions, listing conditions and information disclosure requirements.
Before hitting the main board, Syngenta had tried to land on the STAR Market, announcing its intention to apply for listing on the STAR Market in June 21, and withdrew its application in March 23. Regarding the reason for the transfer, the company said, "As a leading global agritech company, Syngenta is better suited to list on the main board of the Shanghai Stock Exchange under the full registration system, which will also help to reach a wider range of investors and benefit the company's long-term value." ”
Syngenta's IPO journey from application to withdrawal
Listed on the Science and Technology Innovation Board
In June 2021, it was officially announced that it planned to apply for listing on the Science and Technology Innovation Board;
In March 2023, the application for listing on the STAR Market was withdrawn.
Listed on the main board
In May 2023, the application for issuance and listing on the main board of the Shanghai Stock Exchange was accepted, with a planned issuance of no more than 2.786 billion new shares and a planned amount of 65 billion yuan.
In June 2023, the results of the deliberations of the Listing Review Committee of the Shanghai Stock Exchange showed that Syngenta met the issuance conditions, listing conditions and information disclosure requirements.
Withdrawal of IPO application
On March 29, 2024, the SSE announced that it would terminate its review due to Syngenta's submission to withdraw its listing application.
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Exploration of the reasons for the failure of the IPO
Although according to the announcement of the Shanghai Stock Exchange, the reason for the termination was the voluntary withdrawal of the application, the company said that the reason for withdrawing the application was "based on the consideration of its own development strategy and the global environment".
The previous withdrawal from the Science and Technology Innovation Board may be based on factors such as the inconsistency between the agrochemical industry and the positioning of science and technology innovation, and the difficulty in digesting the huge fundraising of 65 billion yuan in the volume of the Science and Technology Innovation Board, so what may be the specific reason behind the withdrawal from the main board this time?
(1) Market questioning angle: huge goodwill, use of raised funds, large scale of debt
Negative doubts about Syngenta focus on the huge amount of goodwill, the use of the funds raised, and the size of the debt.
(1) Huge goodwill risk. As of the end of September 23, the company's goodwill reached 184.09 billion yuan, accounting for 30.4% of total assets and 77.3% of net assets. The goodwill is mainly derived from the acquisition of Syngenta in Switzerland.
(2) Use of fundraising. The IPO plans to raise 65 billion yuan, which will be used for global mergers and acquisitions and repayment of long-term debts accounting for 32% and 30% respectively, in addition to 13 billion yuan to invest in cutting-edge agricultural technology research and development expenses and reserves, 7.8 billion yuan for the expansion of modern agricultural technology service platform (MAP), 3.9 billion yuan for the expansion, upgrading and maintenance of production assets and other capital expenditures. According to the Q&A on Issuance Supervision - Regulatory Requirements for Guiding and Regulating the Financing Behavior of Listed Companies (Revised Edition), the proportion of IPO proceeds used to supplement liquidity and repay debts shall not exceed 30% of the total amount. In addition, the use of equity financing to repay debt also reflects the company's lack of optimism about future shareholder returns. The use of funds raised for global mergers and acquisitions means that the company's main business may undergo major adjustments and high uncertainty.
(3) The scale of debt is large and the leverage ratio is high. From 2020 to the end of June 2023, the company's total debt scale was 1,754.3, 1,701.1, 1,947.2 and 228.68 billion yuan respectively, and the debt ratio increased from 40.6% at the end of 2020 to 60.7% at the end of September 2023, which is a reasonable level in the bond market, but compared with the average debt ratio of 46.5% in the listed agriculture, forestry, animal husbandry and fishery industry and 47.6% in the listed agrochemical products industry, the company's leverage ratio is high.
(4) Violation of intra-industry competition commitments to be resolved. According to Xueqiu investors, investors in the listed company ADAMA (one of Syngenta's core subsidiaries) filed a lawsuit against Syngenta Group for discrepancies with ChemChina's 2017 restructuring commitments due to a number of disclosures in the prospectus, mainly because the prospectus mentions that "the issuer has set up three pesticide business platforms, Syngenta Group China, and ADAMA, to support the independent operation and development of a number of pesticide subsidiaries" , which violated ChemChina's commitment to address ADAMA's peer competition issues or involved securities misrepresentation.
(2) Regulatory concerns: cross-border M&A subsidiary management, etc
Judging from the regulatory inquiry letter, the main concerns are the following issues.
(1) The company was newly established in 2019, integrating the agricultural business units of Syngenta, ADAMA and Sinochem Group, and involving a number of overseas acquired subsidiaries, which may not be mature in terms of corporate governance and synergistic integration of various subsidiaries, and have high global operation, management risks and exchange rate risks.
(2) The early acquisition of Syngenta of Switzerland resulted in a huge debt of US$35.35 billion, most of which were restructured into external debts of Syngenta's controlling shareholder, Agrochemical Company or Sinochem Group, and formed internal borrowings or capital injections by shareholders into the company. Regulators are concerned about whether Syngenta is jointly and severally liable or other potential obligations during the debt restructuring process, subsequent repayment arrangements, and the repayment ability of the agrochemical company and Sinochem Group.
(3) The impact of overseas litigation and investigation on the company, and whether the estimated liabilities are adequate. These include the U.S. Federal Commission's unfair competition investigation into Syngenta Crop Protection (USA), the paraquat lawsuits, the Viptera lawsuits, and the Canadian beekeeper class action.
(4) Intra-industry competition. In addition to Syngenta and its holding subsidiaries, Sinochem Group and ChemChina have similar businesses with the issuers. Among them, the competition between Yangnong Group, Yangnong Chemical and the company has been resolved through asset restructuring.
(5) Other issues: the evaluation and impairment provision of goodwill, the sales model of the commercial contract or licensing agreement of the plant protection business, the situation of major customers and suppliers, the revenue recognition method of the "royalty income" business, the cost composition, the reasons why the sales expense rate is higher than the industry average, the capitalization conditions of R&D expenses, the recorded value and amortization of trademark rights and non-patented technologies, whether the production and operation projects belong to backward production capacity and meet the dual control of energy consumption, etc., the distribution model, and the overall reduction of the amount of application in the plant protection industry.
(3) A-shares are under pressure + the China Securities Regulatory Commission has changed its leadership, the capital market is recuperating, and large-scale IPOs need to be suspended
Before the Spring Festival, the Shanghai Composite Index fell below 2,700 points, although it has since returned to around 3,000 points under a series of rescue measures, but it is still in the stage of adjustment and recovery, and the Syngenta Jumbo IPO is likely to have a greater impact on the market. 03
Impact of IPO Withdrawal (Credit Perspective)
(1) The impact on Syngenta's shareholding structure was maintained at 99.1% by central SOEs, but the impact was neutral due to the loss of equity market financing channels. If the listing is successful, the controlling shareholder, China National Agrochemical Corporation, will reduce its shareholding ratio from 99.1% to about 80%, and its absolute controlling position will not be affected.
(2) Debt reduction and leverage ratio channels are blocked. Since 19.5 billion yuan of the company's fundraising is used to repay long-term debt, and the company's ownership equity can be increased through IPO financing, if the IPO is successful, it is expected to reduce the company's total debt by 8.5% (estimated according to 23H1 debt) and the debt ratio from about 60% to about 53% (estimated according to 23Q3 data). As of the end of June 23, the company's total debt was 228.68 billion yuan, and the total debt/EBITDA in 20-22 years was 7.28, 6.57 and 6.16 respectively, and there was a certain long-term debt burden.
(3) The reduction of global M&A funds is neutral, but it is necessary to pay attention to whether the company will switch to debt financing in the future to continue to implement the M&A plan. The company's fund-raising use of 20.8 billion yuan for global mergers and acquisitions, because the company is already in the leading position in the industry (the plant protection industry ranks first in the world, the seed industry ranks third in the world), the continued implementation of global mergers and acquisitions to further enhance the company's competitiveness is limited, and the global mergers and acquisitions themselves are risky, will further increase the company's book goodwill. Therefore, if the company stops its original global M&A plan due to the IPO failure, the impact is neutral, but if the company continues to switch to debt financing to implement the M&A, it will further significantly increase the company's debt level and financial risk.
(4) There is a high possibility of substitution with debt financing for other IPO fundraising purposes, which will further increase the company's leverage ratio. Including 13 billion yuan for the research and development of cutting-edge agricultural science and technology, 3.9 billion yuan for the expansion, upgrading and maintenance of production assets and other capital expenditures, 7.8 billion yuan for the expansion of modern agricultural technology service platform (MAP), a total of 24.7 billion yuan, accounting for 10.4% of the company's net assets at the end of September 23.
(5) For ChemChina, the indirect controlling shareholder, the backup liquidity channel has narrowed. As of the end of September 23, ChemChina's debt ratio was as high as 96.2% (adjusted by perpetual bonds), with a total debt scale of about 556.55 billion yuan, if Syngenta was successfully listed, ChemChina indirectly held about 80% of the shares through the chemical agrochemical company (holding 11.045 billion shares, 1.672 billion shares have been pledged), and the market value of the shares was about 260 billion yuan at the issue price.
Source丨Comprehensively compiled from Caixin Weekly, Club of Proposed Listed Companies, YY Odin, etc. Editor丨Nong Caijun Contact Nong Caijun丨18565265490
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