ChemChina set to increase its stake in Mercuria

China National Chemical Corporation is set to increase its holding in commodity trader Mercuria, as part of a deal that will see the Swiss group gain an interest in the Chinese company’s onshore refining system.

Under the agreement, which is yet to be finalised, the state-controlled conglomerate will add to its 12 per cent stake in Mercuria, one of the world’s biggest traders of oil, gas and metals.

In return, Mercuria will secure an interest in ChemChina’s refining assets, according to people familiar with the matter, giving the Swiss trader a significant foothold as China cements its position as the world’s biggest importer of crude oil.

Mercuria will also support ChemChina’s expanding international trading business, which has offices in London, Dubai and Singapore.

It is not clear what stake ChemChina will take in Mercuria if the deal is finalised but it will be a significant minority interest, the people said.

Mercuria declined to comment on the discussions, which were first reported by Reuters.

For Mercuria the deal provides an opportunity to build its business in China, which is run Han Jin, a former oil trader who founded the company in 2004 with former Goldman Sachs commodity traders Marco Dunand and Daniel Jaeggi.

ChemChina operates nine refineries with processing capacity of more than 500,000 barrels per day. Only PetroChina and Sinopec, China’s two oil majors, have bigger positions.

The proposed transaction builds on the initial investment ChemChina made in Mercuria two years ago, taking a 12 per cent stake in a deal that valued the commodity trader at around $3bn.

The transaction followed a flurry of deal making activity in which the Beijing-based company acquired Italian tyremaker Pirelli, which it has since relisted, and launched a $44bn takeover of Syngenta, one of the world’s biggest crop science companies.

Although technically a state-controlled company, ChemChina, which has interests ranging from chemicals to refining and agriculture, has functioned more like an aggressive private business under the leadership of its chairman Ren Jianxin.

Mr Ren, who built the company from the bottom up, is known in official state media as the “king of mergers”.

ChemChina’s discussions with Mercuria follow a successful year for the Geneva-based company, which has stood out for its strategy of combining pure trading with complex financing deals.

Mercuria recently revealed a near 50 per cent increase in profits for 2017, in spite of tough conditions in its core oil business, to post net income of around $450m and pay one of the biggest dividends in its history.

The company has broadly pushed deeper into financing and client services than rivals.

It bought the bulk of JPMorgan’s physical commodity trading operations in 2014 and has looked to play a growing role in the rise of crude oil exports from the US, of which China has emerged as the biggest single buyer.

More recently it acquired the US gas and power business of stricken rival Noble Group.

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