Discount Investment Corporation said Sunday it had agreed to sell its 40% stake in Adama to China National Chemical Corporation for the equivalent of $1.4 billion, giving the Chinese company complete control of their joint venture agrochemicals maker.
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The sale will in a single stroke ease the debt burden of Discount and its parent company, IDB Development Corporation, and end a lawsuit Discount had threatened in connection with ChemChina’s $43 billion purchase of Switzerland’s Syngenta.
Shares of Discount shot up nearly 23% to 10.90 shekels ($2.82) by close in Tel Aviv Stock Exchange trading late Sunday afternoon. Shares of IDB Development, a holding group controlled by Argentinian Eduardo Elsztain, rose 10% to 88 agorot. IDB bonds were higher, too, with prices rising between 6% and 10%. But Adama bonds were down 0.8%, raising their yield to 4.54%.
Under the deal, ChemChina will erase a $1.172 billion loan it made to IDB when it bought a 60% stake in Adama in 2011. The remaining $230 million will come as a cash payment to Discount, which carries about 4.4 billion shekels of debt to banks and bondholders.
Discount said it would report a capital gain of 690 million shekels from the sale in the third quarter.
Discount, then controlled by Nochi Dankner, sold 60% of Adama, the world’s biggest maker of generic agro-chemicals, to ChemChina in a deal that valued the company at $2.4 billion. At the same time Discount took a $960 million, seven-year loan from the Chinese company.
Conveniently for IDB, the sale announcement comes just before Tel Aviv District Court Judge Hagai Brenner is due to hear arguments Wednesday in a petition by IDB Development bondholders seeking an order to liquidate the holding group.
Separately, Adama said on Sunday that a long-awaited merger with a smaller Chinese chemical maker called Sanonda would probably be completed in the first half of 2017, a move designed to speed up Adama’s integration into China and allow it to be floated on the Shenzhen Stock Exchange.
“The combined company will continue to be headquartered in Israel and be committed to its Israeli and global business culture, as well as the continued growth of its Israeli operations. Adama’s bonds will continue to be publicly traded on the Tel Aviv Stock Exchange,” Adama said in a statement.
Sanonda’s shares have been suspended from trading since last Auguse, when the proposed deal was first announced. They are expected to resume on August 4, when Adama said it hoped to conclude the framework of the deal.
Adama said the reverse merger with Sanonda would give it access to renminbi- and Hong Kong dollar-denominated capital markets.
The merger of Adama and Sanonda, first announced last year, comes amid a consolidation of global agrochemicals companies, partly in response to a drop in commodity prices that has hit farmers’ incomes. Besides the ChemChina-Syngenta deal, Germany’s Bayer last week lifted its offer to buy America’s Monsanto to $125 a share
Discount said its sale of its 40% stake in Adama lifts the threat of a lawsuit it said it would file claiming that ChemChina’s acquisition of Syngenta, the world’s biggest agrochemicals maker, violated a non-compete agreement it made when it bought its controlling stake in Adama five years ago.
Last week, ChemChina extended the deadline for Syngenta shareholders to sell their shares to September 13.