Executives threaten to walk out over sale of Sinochem Logistics

The $2bn disposal of chemical carrier owner Sinochem International Logistics has been hit with opposition from banks as top-level executives threaten to quit

Sinochem International Logistics is facing turmoil as a prospective sale of the company is meeting resistance from management, financiers and business counterparties.

Key company officials say they think up to 40% of their colleagues would quit rather than go on with a sale to prospective buyer Inner Mongolia Junzheng Energy & Chemical Co, which is controlled by billionaire coal miner Du Jiangtao.

Partnership problems?

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The Chinese company was growing its fleet rapidly just over a year ago, preparing to move beyond regional trading and take on the world's top chemical carrier owners.

Now, after trimming its global ambitions, putting its series of advanced newbuildings in the hands of Norway's Odfjell and readying itself for a strategic spin-off with an initial public offering as the goal, the effort is facing major hurdles.

Joint venture partners also concerned about Sinochem deal

  • In addition to bank resistance, Sinochem International Logistics officials say joint venture partners are unhappy.
  • That includes the Lianyungang Port Authority, its partner in a large new chemical products terminal; Japan's Dorval Kaiun, which owns 49% of Dorval SC Tankers; and Norway's Stolt-Nielsen, whose long-standing domestic shipping venture with Sinochem comes up for renewal in 2020.
  • But Stolt-Nielsen says this is incorrect and it has not ruled out renewing the Stolt-Sinochem domestic business.
  • "We are waiting for the outcome of the acquisition process, and we are looking forward to meeting the new investor," said Qu Minwei, Stolt-Nielsen's managing director in China. He adds that Stolt is not orientated about the financial progress of the deal.

State-owned parent Sinochem Group, through Shanghai-listed Sinochem International Corp, has been trying to conclude the sale of shipping and logistics subsidiary Sinochem International Logistics to Junzheng. The company, which is based in Wuhai in landlocked Inner Mongolia and has no logistics or shipping experience, was the winner of a one-round auction in early December.

The end goal is said to be an IPO. But some sources worry that the prospective buyer may be more interested in short-term financial advantages, such as flipping the company or its assets and using its international corporate platform for access to foreign currency.

Shipping officials think the best outcome would be a failed sale and a new auction, and express strong scepticism about their freedom to manage the company under the new buyer.

Meanwhile, Junzheng has missed financing deadlines and also attracted the uncertainty of banks and some business counterparties, sources said.

As an ultimately state-owned company, Sinochem International Logistics must be sold through a prescribed process, in which a secret reserve auction price is lowered by 10% with each new round if it is not met.

Sources told TradeWinds that in the December sale, the parent company set a first-round floor price much higher than recommended by officials at Shanghai International Logistics. Junzheng, which had not done a process of due diligence before the auction, swept aside competition with a bid of CNY 3.45bn ($545m) — just above that reserve.

However, that was only the equity piece of the deal. Junzheng must also take over existing debt and win covenant waivers from the holders of 75% of it.

Debt backing the company's vessels, tank containers and other assets — at the last date for which figures were available before the auction — came to CNY 9.3bn. But most of that is in dollars and with foreign lenders.

Junzheng, which enjoys support of local banks in Inner Mongolia, may have underestimated the financial task before it. Money on offer so far is understood to come well short of the CNY 12.75m ($2bn) total of debt and equity.

Bank offers could not be confirmed. But one main lender — the Inner Mongolia branch of China's ICBC Bank — is said to be putting up CNY 3bn and still seeking syndicate partners to double that.

Sources said Minsheng Bank offered to lend CNY 2.7bn, on a pledge by Du of his Junzheng stock.

In an awkward catch, the Sinochem acquisition depends in part on the Minsheng loan, but the amount of the Minsheng sum also depends on the price of Junzheng stock. But the shares are suspended from trading pending the outcome of the acquisition. If that price falls, the Minsheng offer will be substantially devalued.

Sinochem International Logistics' five biggest lenders are Bank of America, Australia's ANZ, Spain's Santander, and China's ICBC Leasing and Bank of Communications (BoCom) Financial Leasing. Company and banking sources say the foreign lenders especially are pushing back because of reluctance to deal with a domestic borrower not guaranteed by the Chinese state.

Company sources say the seller first agreed to postpone a 9 January deadline until the Chinese New Year holidays, then suspended the deadline altogether, rather than collecting its CNY 34.5m breakup penalty from Junzheng.

Company officials are unwilling to be quoted by name during the sensitive sell-off of the state-owned company but say the outfit is unable to initiate and carry through any significant new plans.

The seller and buyer are both Shanghai-listed entities. Liu Hongshan, chief executive of seller Sinochem International Corp, referred questions to Junzheng and its public disclosures, while Junzheng board secretary Zhang Jie declined to comment, citing stock market rules.