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Announcement:

Moody's: Proposed joint restructuring of ChemChina and Sinochem is credit positive; no immediate rating impact

 The document has been translated in other languages

07 Apr 2021

Hong Kong, April 07, 2021 -- Moody's Investors Service says that the upcoming joint restructuring of China National Chemical Corporation Limited (ChemChina, Baa2 stable) and Sinochem Group (Sinochem) through a merger is credit positive for ChemChina and Sinochem Hong Kong (Group) Company Limited (Simochem HK, A3 stable), an integral subsidiary of Sinochem with a credit profile closely linked to the parent. The planned joint restructuring does not pose any immediate rating impact, pending more details of the plan. Moody's will monitor the progress of the plan and assess the rating impact as more details are released.

On 31 March 2021, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) of China announced that it has approved the joint restructuring of ChemChina and Sinochem Group. According to a Sinochem statement, both ChemChina and Sinochem will become subsidiaries of a newly setup holding company directly under the central SASAC.

Moody's initial assessment is that the combined group will increase the economies of scale and diversity of the business operations. This would strengthen the risk profile of ChemChina or Sinochem, compared to their current operations as separate units. The joint restructuring will also enable ChemChina to deleverage, Sinochem to expand its businesses and products to reduce business volatility, and could generate synergies given their overlapping businesses in agrochemicals, refining, and chemicals.

In addition, Moody's expects the combined group to have a very high strategic importance to the Chinese government. This is so given the enhanced policy functions and market positions of the strategically important agrochemical and chemical industries in China, as well as the group's unique position as the only large chemical company among China's central state-owned entities (SOEs). As a result, Moody's expects the combined group to likely receive very high support from the central government.

Moody's does not see any immediate rating impact from the joint restructuring to the existing ratings of ChemChina, Sinochem HK, and the other rated subsidiaries, including China National Bluestar (Group) Co., Ltd. (Baa2 stable), Sinochem International Corporation (Baa1 stable) and China Jinmao Holdings Group Limited (Baa3 stable). This is because the announcement does not provide details of the subsequent restructuring plan and it is unclear how government support for the combined group will flow through to the different rated subsidiaries. Moody's also sees some uncertainties, including the terms and conditions of the joint restructuring, the new management, business strategy and capital structure of the combined group. These issues could affect Sinochem and ChemChina as well as their rated subsidiaries' credit profiles and ratings. Moody's will monitor the progress of the joint restructuring, evaluate the proforma financial profile of the combined group, and the rating impact as more details are disclosed.

Specifically, Moody's will assess (1) the combined group's overall debt capital structure, (2) any new equity raising from reorganizing the businesses consolidated from ChemChina and Sinochem, and (3) any monetization of the non-core assets of the two chemical companies.

The principal methodologies used in rating China National Chemical Corporation Limited were Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388 , and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. The principal methodology used in rating China National Bluestar (Group) Co., Ltd. and Sinochem International Corporation was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. The principal methodology used in rating Sinochem Hong Kong (Group) Company Limited and China Jinmao Holdings Group Limited was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

China National Chemical Corporation Limited (ChemChina) is the largest chemical company in China in terms of revenue and assets. The company's business lines include agrochemicals, rubber products, new chemical materials and specialty chemicals, industrial equipment and petrochemical processing. ChemChina is 100% owned by the Chinese government (A1 stable). The company's annual revenue reached RMB454 billion in 2019.

China National Bluestar (Group) Co., Ltd. (Bluestar) is 79.48% owned by ChemChina, directly and indirectly, and it produces a wide range of chemical products, including silicon upstream and downstream products, methionine, water treatment solutions, and polyethylene and petrochemical products. The company generated RMB55.8 billion of revenue in 2019.

Sinochem Hong Kong (Group) Company Limited (Sinochem HK) is 100%-owned by Sinochem Group. It is the overseas treasury center and overseas financing platform of Sinochem Group. Sinochem HK also holds equity interests as the overseas holding company on behalf of Sinochem Group, and it held around 35% share interest in listed real estate company, China Jinmao Holdings Group Limited, at the end of 2019.

Sinochem International Corporation (Sinochem Int'l) is 55.76% owned by Sinochem Group as of end of 2019. It has a diversified business portfolio across agrochemicals, rubber, specialty chemicals and distribution and trading. The company had total revenue of about RMB52.8 billion in 2019.

China Jinmao Holdings Group Limited (China Jinmao) is a subsidiary of Sinochem HK. China Jinmao develops residential and commercial properties in tier 1 and major tier 2 cities in China. The company has also invested in primary land development projects.

The local market analyst for China National Chemical Corporation Limited, China National Bluestar (Group) Co., Ltd., Sinochem Hong Kong (Group) Company Limited, and Sinochem International Corporation is Jin Wu, +86 (21) 2057-4021.

The lead analyst for China Jinmao Holdings Group Limited is Cedric Lai, +852 3758-1456.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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