Sinopec Surges as It Seeks Investors for $20 Billion Sale
China Petroleum & Chemical Corp. (386) shares surged as it seeks private investors for as much as 30 percent of its oil retail unit, in a sale that could raise more than $20 billion.
The board approved the plan yesterday to explore the restructuring of the business, which operates the nation’s largest network of more than 30,000 fuel stations, the Beijing-based company known as Sinopec said in a statement.
Sinopec’s move is its first step to meet a government promise to encourage more private investment in state-owned industries, as part of China’s biggest package of reforms since the 1990s unveiled by its leaders in November. The reform pledge comes as annual growth in China is expected at its slowest in 24 years. The sale is also in line with a trend to move away from energy infrastructure and focus on production.
Selling 30 percent could raise more than $20 billion, Barclays oil and gas analyst Somshankar Sinha wrote in a research note. Sinopec’s Hong Kong-listed shares rose as much as 10.4 percent, the most in more than five years, and closed 9.4 percent higher at HK$6.62.
“It’s viewed as value creative for Sinopec,” Tony Hann, the head of emerging-market equities at Blackfriars Asset Management Ltd., said by phone from London yesterday. “It’s an indication authorities are going to deliver on their promise to make these state-owned enterprises more market-oriented.”
Sinopec’s unit that markets and distributes petroleum products was its biggest contributor to sales in 2012, with 71 percent, according to data compiled by Bloomberg. The company operated 30,532 fuel stations across China as of the end of 2013, it said in an e-mail yesterday. Its network includes about 10,000 kilometers (6,215 miles) of oil pipelines and more than 15,000 cubic meters of storage facilities.
The “retail business is a cash cow that could be appealing to private individuals who don’t have the appetite to take on capital-intensive upstream projects,” said Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc.
The unit, which includes Sinopec’s oil retail business, posted a 26.74 billion yuan ($4.4 billion) operating profit in the first nine months of 2013, accounting for 34 percent of the company’s total. Profit from exploration and production was 46.33 billion yuan, or 60 percent. Sinopec lost money on its chemicals business over the period.
The move could promote “professionalism” in Sinopec’s retail business and improve its operating efficiency, the company said in its e-mail, without naming potential investors.
“By bringing in individuals that have more marketing experience in running a retail business, it could improve efficiency and encourage best practice,” said Nomura’s Kwan. “It’s a win-win situation. The retail business does not have a high margin compared with Sinopec’s upstream business.”
Sinopec’s American depository receipts surged 8.4 percent to $83.51 in New York, their highest level in two months. The stock is rated a buy by 28 analysts, according to data compiled by Bloomberg. Three analysts recommend holding the stock and three rate it a sell.
“This is probably the first of several such announcements one can expect as the government really pushes this reform of state-owned enterprises through,” said Brendan Ahern, New York-based managing director of Krane Fund Advisers LLC, which manages a Kraneshares ETF that tracks Hong Kong-traded companies.
The nation’s largest oil and gas company, PetroChina Co., rose as much as 4.4 percent and closed 2.5 percent higher at HK$8.15. It’s expected to further its own restructure in the wake of Sinopec’s announcement, said Nomura’s Kwan. That could include additional sales of gas pipelines and the allocation of more cash to upstream projects, while cutting spending on refining and chemicals.
Oil producers selling energy infrastructure assets “is a global divesting trend, not just in China,” he said.
PetroChina sold a 50 percent stake in a Chinese pipeline joint venture in June to two Chinese investment funds. Its Beijing-based spokesman Mao Zefeng didn’t answer two calls to his office seeking comment.
Sinopec said the percentage of private investors allowed will depend on market conditions. According to Barclays’ Sinha, “long-term investors, domestic and foreign, are likely to covet owning a stake –- Sinopec has a dominant marketing network with leading market share, profitability and returns.”
PetroChina ranks second in terms of its retail network, with more than 20,000 fuel stations as at the end of June, it said in August.
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