At the Group’s performance evaluation conference held in October 2010, President Liu Deshu spoke highly of Sinochem International’s development of rubber business. “Sinochem International analyzes the production, processing, resources and investment opportunities of the natural rubber from both domestic and international perspectives. It has solved the problem of natural rubber resources by developing resources in Africa, and improved the production by enhancing its processing capacity, thus further improving its market competitiveness”, said President Liu. Following the acquisition of GMG in 2008, Sinochem International acquired Teck Bee Hang Co., Ltd. in Thailand on November 28, 2010, speeding up the extension of its global industry chain.
Since the acquisition of Teck Bee Hang which lasted for merely one year, Sinochem International has had its natural rubber processing capacity increased from 300,000 tons to 500,000 tons, making a leap to becoming the world’s third largest supplier of natural rubber. Since then, with the booming development of Hainan Sinochem Rubber and Xishuangbanna Sinochem Rubber in the domestic market, as well as two natural rubber plantation and processing bases in Africa and Thailand, Sinochem International has primarily deployed its global natural rubber business with significantly improved status and strength.
Quick Move to a Blue Ocean
Sinochem International has built a long-lasting relation with Teck Bee Hang, as they cooperated to set up the Dehua Rubber Company as early as 1980s and have maintained good business communication and dealings with each other since then. In addition, based on the successful OEM cooperation since 2007, it came naturally that Sinochem International chose Teck Bee Hang as the subject of its global rubber strategy.
In mid-2009, out of concerns about the safety issues due to the local tension, the former Japanese subcontractor of Teck Bee Hang’s Pattani plant moved away from the Southern Thailand market, where there came a good opportunity! Sinochem International immediately rushed into the three provinces in Southern Thailand and started the subcontracting-based processing business. The cooperation with Teck Bee Hang secured the stable supply and quality of natural rubber, which has not only opened the doors of a number of internationally renowned tire companies including Michelin, Continental, Bridgestone and Kumho, but also made remarkable gains. Teck Bee Hang has had its natural rubber processing capacity quadrupled from 3,000 tons in 2008 to 12,000 tons in 2010, and reduced the product cost by 30-50 US dollars per ton compared with the former OEM supplier.
On November 18, 2009, GMG as a subsidiary held by Sinochem International made a phone call to Teck Bee Hang, which marked the beginning of this significant acquisition. Coincidentally, it was the birthday of Mr. Li Jingcheng, General Manager of Teck Bee Hang, on the same day. On March 8, 2010, GMG signed a Memorandum of Understanding on acquisition with Teck Bee Hang. On November 29, 2010 in Singapore, GMG as a subsidiary held by Sinochem International held the signing ceremony together with Zhu-Jun Company, the shareholder of Teck Bee Hang Co., Ltd. GMG and its affiliates made a zero-asset acquisition of 55% of the shares of Teck Bee Hang in a liability transferring manner, declaring the formal legal completion of the acquisition and the entry into the phase of integration.
After the completion of the legal acquisition procedures at the end of 2010, reliable sources indicate that another potential buyer is likely to make an acquisition offer in March 2011. As business is war, some media commented that Sinochem International has made a quick move and done a nice job.
Boost Confidence in Overcoming Challenges
Founded in 1954 by Mr. Li Yintong who was a famous overseas Chinese, Teck Bee Hang Co., Ltd. was one of the world’s largest natural rubber processors in the 1990s. Later, it was brought down due to market competition and other reasons, and has been subject to balances or losses since 2003. Teck Bee Hang now has an annual capacity of 200,000 tons, as well as five processing plants located in the Southern Thailand’s natural rubber production bases in Suratthani, Trang, Pattani, Yala and Narathiwat provinces which have the world’s highest natural rubber planting density. Teck Bee Hang was once the benchmark for other natural rubber processors in Thailand with sound processing and quality assurance systems. Its products represent the highest level of natural rubber in Thailand and are accredited by almost all the high-end tire companies. It enjoys extensive brand recognition in the industry and offers significant value in M&A.
However, as the areas where the headquarters and major processing plants of Teck Bee Hang are located are subject to domestic political chaos, the special geographical location has posed a challenge to Sinochem International regarding the acquisition of Teck Bee Hang. After weighing the balance between risk assessment and strategic development, the Board and management team at Sinochem International believe that the risks existing in Southern Thailand are only temporary, and the acquisition project must be pushed forward on schedule. Under such circumstances, in August 2010, the acquisition project entered the key stage, and a mission led by President Pan Zhengyi of Sinochem International carried out a field investigation of Teck Bee Hang’s processing plants located in the three provinces in Southern Thailand.
During the investigation, President Pan asked the rubber tappers: “what is the maximum output on record?” The workers were stunned, “we were considering how to solve the problem of keeping the minimum output and maintaining the operations of the plant earlier”. And President Pan’s question with full confidence suddenly lit up the hope of the workers at Teck Bee Hang’s plant in Yala. “Working with Sinochem International, we can expect a common bright future”.
“30”, “8” and “32”
As it was a liability-based acquisition project, how the problem solving went with the eight banks in Thailand as creditors directly determined the success of the acquisition.
This task was faced with three challenges:
The debts of Teck Bee Hang had been accumulated for nearly 30 years from 1980 to 2002, and many original documents and certificates could not be found over such a long period.
The creditors of Teck Bee Hang involved 8 banks including Thailand’s largest state-owned bank, and each bank needed to be analyzed in detail with personalized solutions.
Teck Bee Hang were subject to 32 claims, each of which contained a surprising number of documents in Thai, and countless items involved in the documents needed to be checked one by one.
Faced with the above “30”, “8” and “32”, Sinochem International GMG worked hard with the shareholder of Teck Bee Hang and realized debt restructuring proceeds in the amount of 7.5 million US dollars.
In the meanwhile, while dealing with the Thais, the members of Sinochem International’s project team had to cope with the huge cultural differences. The Thais never “Say No” frankly, and further adjustment of details would be required in discussion unless they gave their consents expressly. In such circumstances, Sinochem International advanced the negotiations quickly and achieved good results in a very short period of time.
Through the acquisition, Thailand as the world’s largest producer of natural rubber, China as the world’s largest consumer of natural rubber and Singapore as the world’s trading center for natural rubber has been organically linked to each other, and Sinochem International has further strengthened its differential advantage in natural rubber business.