I would get a second opinion from a chimney specialist (not a sweep) ranked high on Angie's List.
I recently had three chimneys in a 19th-century house rebuilt and lined by the top-ranked local chimney specialist. As you can imagine, that was a lot of work and a big expense. They did install new chimney caps, which I clearly needed. He never mentioned a thing about water repellant, and I'm surprised to hear this would be an issue. Water shouldn't be getting through your chimney in any case. So it sounds confusing and non-intuitive to me, and again, I'd get a second opinion.
I am reminded of a situation I once had with a chimney on another house. The roofers said, "While we were up there, we noticed some crumbling, you might want that looked at." So I called a chimney guy and he gave me an estimate of $2000 to do various kinds of tuckpointing and repair. Then I heard of another well-praised chimney guy and he came over and did all the work for $300. The chimney has been fine in the 15+ years since. So caveat emptor.