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The China Dream: Syngenta’s mammoth A-share IPO a playbook for few

When the CNY 65bn (USD 9.13bn) domestic initial public offering of Syngenta Group comes, it will almost certainly be the country’s largest listing after the Agricultural Bank of China’s [SHA:601288] USD 22.12bn flotation in 2010. On a global scale, the deal would be the world’s largest since LG Energy [KRX:373220] raised USD 10.2bn from its share sale in January 2022, although the market is anticipating a USD 8bn-USD10bn Nasdaq IPO of UK-headquartered Arm in the coming weeks.

The listing of the Switzerland-headquartered seeds and fertilizer maker, acquired by China’s state-owned ChemChina for USD 43bn in 2017, comes after China rewrote the rules for listings of its companies at home and abroad earlier this year, under which a registration-based scheme was introduced for domestic IPOs.

Due to the size of Syngenta’s IPO, it’s unclear when the deal would happen. Timing and execution of the deal will be a delicate act to avoid crowding out liquidity of the broader stock market, said an IPO lawyer at Allbright Law Offices.

The same lawyer reckoned that at least CNY 20bn-CNY 30bn worth of the IPO will likely be placed with strategic investors – a concept similar to cornerstone investors in Hong Kong IPOs – or via online or offline sales channels on the secondary market. Strategic investors also include foreign investors.

One thing is for sure – US funds are unlikely to invest in the deal given tensions between the two economies, said market watchers, who are not directly involved in the transaction.

Syngenta and the deal’s arrangers, led by CICC and BOC International, will likely engage investors from the Middle East instead, said the Allbright lawyer, an IPO lawyer at Han Kun Law Offices and an advisor at Haitong Securities. China has strengthened ties with members of the oil-rich Middle East in recent years as it’s facing growing concerns from the West about the world’s over reliance on its factories and resources.

While Syngenta’s IPO will likely be the most high-profile A-share listing of overseas assets ever, market watchers said the deal may not provide a roadmap for overseas companies acquired by Chinese buyers.

First and foremost, Syngenta is owned by ChemChina, a central government-owned company, and therefore its path cannot be simply duplicated by private companies, or even local-government-owned companies, said the Allbright lawyer.

Central to the IPO of Syngenta, the same lawyer said, is the securitization of an earlier investment by state-owned capital. 

Some private equity funds have always been interested in buying offshore assets with an aim to put them up for eventual A-share listings, a route that almost guarantees returns given price gaps between domestic and overseas valuation, said the lawyer.

But few have succeeded thus far.

An IPO like Syngenta’s will certainly make exchanges elsewhere jealous, as global maiden equity listings have totaled USD 80.34bn as of 12 August, down 30% from USD 114.14bn the same period last year, Dealogic data show.

While China’s domestic IPOs also fell from the same period last year’s USD 44.75bn, the magnitude was a much smaller 14%.

The deal’s preparations kicked off as the Chinese government rolling out multiple measures to revive confidence in an ailing economy and the capital markets.

On 31 July, the China Securities Regulatory Commission (CSRC) met representatives from leading consulted securities firms for possible measures to boost stocks and restore investor confidence.

The MSCI China A Index has lost 9.06% over the past year, according to data as of 31 July 2023, while the MSCI Asia Pacific Index has grown 9.67% during the same time frame.

When Syngenta accomplishes the listing, it will no doubt be worthy of celebrations at a time when headlines about China are rather downbeat.

At the very least, it will further solidify China’s position as the world’s largest IPO market, albeit a rather domestic playground with relatively light foreign investor participation.