BY AIBING GUO
China Petroleum & Chemical Corp. (Sinopec) shares surged as
it seeks private investors for as much as 30% 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 nations
largest network of more than 30,000 fuel stations, the Beijing-
based company known as Sinopec said in a statement.
Sinopecs move is its first step to meet a government
promise to encourage more private investment in state-owned
industries, as part of Chinas 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% could raise more than $20 billion, Barclays oil and
gas analyst Somshankar Sinha wrote in a research note.
Sinopecs Hong Kong-listed shares rose as much as 10.4%,
the most in more than five years, and closed 9.4% higher at
Its viewed as value creative for Sinopec,
Tony Hann, the head of emerging-market equities at Blackfriars
Asset Management, said by phone from London yesterday.
Its an indication authorities are going to deliver
on their promise to make these state-owned enterprises more
Sinopecs unit that markets and distributes petroleum
products was its biggest contributor to sales in 2012, with
71%, 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 dont have the appetite to take
on capital-intensive upstream projects, said Gordon Kwan,
the regional head of oil and gas research at Nomura Holdings
The unit, which includes Sinopecs oil retail business,
posted a 26.74 billion yuan ($4.4 billion) operating profit in
the first nine months of 2013, accounting for 34% of the
companys total. Profit from exploration and production
was 46.33 billion yuan, or 60%. Sinopec lost money on its
chemicals business over the period.
The move could promote professionalism in
Sinopecs retail business and improve its operating
efficiency, the company said in its e-mail, without naming
By bringing in individuals that have more marketing
experience in running a retail business, it could improve
efficiency and encourage best practice, said
Nomuras Kwan. Its a win-win situation. The
retail business does not have a high margin compared with
Sinopecs upstream business.
Sinopecs American depository receipts surged 8.4% 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, which
manages a Kraneshares ETF that tracks Hong Kong-traded
The nations largest oil and gas company, PetroChina, rose
as much as 4.4% and closed 2.5% higher at HK$8.15. Its
expected to further its own restructure in the wake of
Sinopecs announcement, said Nomuras 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% stake in a Chinese pipeline joint venture
in June to two Chinese investment funds. Its Beijing-based
spokesman Mao Zefeng didnt answer two calls to his office
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
PetroChina ranks second in terms of its retail network, with
more than 20,000 fuel stations as at the end of June, it said