Wengfu and Kailin Mega Phosphate Merger Nears Completion

The proposed merger between Chinese phosphate producers Wengfu and Kailin has made significant progress over recent weeks and is likely to be completed by the end of June, CRU understands.

The acceleration of the process has been pushed by the Guizhou provincial government, an indirect shareholder of both companies, which expressed its desire to speed up the process to improve efficiencies.

A combined company (referred to as WengfuKailin throughout this Insight) will be the third largest producer of both phosphoric acid and phosphate rock globally. This insight analyses the potential structure of a combined company and its likely influence on the global phosphate market – an influence we believe will be small for fertilizer markets but more impactful in the niche phosphate salts and value-added markets.

Merger forms a global phosphate giant
Wengfu and Kailin entered merger talks approximately 18 months ago. Government owed capital entities are the largest shareholders of both companies. Guizhou provincial government owns 100% of Kailin Holding Ltd, through a province-owned assets supervision and administration commission. Close of 60% of Wengfu is held by two central government capital entities, while and Guizhou province holds a smaller share.

Given the size and ownership structure of both companies, CRU had expected the merger to take at least 3-4 years to be completed – if at all. However, recent activity has speeded up the process, and is exemplified by the strong push by government and the move of Wengfu’s chairman to Kailin in 2018.

Kailin successfully signed debt-for-equity agreements with several investors in April, totalling close to RMB 5 billion. This will decrease its debt-asset ratio by around 10% from the 90.4% reported at the end of March 2018, according to statements from Kailin. This compares to Wengfu’s debt-asset ratio of 77.7% at March 2018.

Collectively, the two companies produced 6.0 Mt of DAP in 2018, 22% of China’s total DAP output. The merger between Wengfu and Kailin will make the combined company the largest phosphate producer in China, leapfrogging the Yunnan-based Yuntianhua Group (YTH). WengfuKailin will become the third largest phosphate producer globally, in phosphoric acid and phosphate rock terms, behind OCP and Mosaic.