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Tuesday 2 November 11:32 PM
UPDATE: Sinopec Restructuring Bolsters Downstream OpersBy Carmen Chan Of DOW JONES NEWSWIRES HONG KONG (Dow Jones)--China Petroleum & Chemical Corp. (0386.HK), or Sinopec Corp., Tuesday announced a major restructuring that analysts said would strengthen its downstream operations. China's largest refiner said it would make three profitable downstream acquisitions - of gas stations, and petrochemical and catalyst assets - from its parent, Sinopec Group, for 4.58 billion yuan (US$553 million). At the same time, it said it would sell its lossmaking oilfield services operation to its parent for CNY1.75 billion. Sinopec must pay the difference of CNY2.83 billion in cash within 20 business days of the deal's completion. "The rationale of the deal is to rapidly expand the company's core business and to deliver on promises made at the time of listing," said Zhang Jiaren, Sinopec's chief financial officer. He said the company has now met all the promises on expansion it made in its listing prospectus. The company listed in October 2000. Zhang said the purchase of the gas stations would strengthen the company's retail capability and help it compete with foreign companies when they are allowed to open gas stations in China from Dec. 12, 2004, in accordance with China's agreement with the World Trade Organization. Investors welcomed the restructuring by raising Sinopec's share price by 4.2% Tuesday to HK$3.075. Michael Lee, an analyst at UOB Kay Hian, said: "It's a good deal - with a low price-to-earnings ratio and allowing the company to ride on downstream products uptrends." Lee said the acquisition price is only about three times the acquisition targets' annualized 2004 earnings. Sinopec said the three assets had a net profit of CNY775 million in the first half of 2004, while the assets being sold had a net loss of CNY105 million in the same period. The company said that on a pro-forma basis, the asset swap would have lifted its first-half net profit this year by 5.5% to CNY17.03 billion, from CNY16.15 billion. The gas station assets to be acquired include 1,023 gas stations and 54 oil depots. "There won't be any major gas station acquisitions from the parent in the future, as it will only have a few left after this sale," Zhang said. He said to buy the gas stations and prepare for the market's liberalization, Sinopec has increased its capital expenditure plan for 2004 to CNY64.32 billion from CNY56.32 billion. The petrochemical assets the company aims to acquire are mainly involved in the manufacture of ethylene and its downstream products, synthetic fiber monomers, polymer products and refined oil. The purchases will increase Sinopec's ethylene production capacity by 380,000 metric tons, or 12% from its output capacity of 3.24 million tons in 2003. The company's output capacity of synthetic resins, meanwhile, will rise by 580,000 tons, up 12% from 4.73 million tons in 2003, and its production capacity of synthetic fiber monomers and polymers will rise by 450,000 tons, or 24% from 1.84 million tons last year. The catalyst assets include eight entities that mainly produce refining and chemical catalysts. Sinopec said they would lift its 2003 catalyst capacity of 2,800 tons to 80,730 tons a year. The upstream oil services Sinopec is selling include operations for oilfield and gas testing, maintenance and repair. Sinopec said after the disposal it would put these services out to tender, similar to the practice of international oil companies. Some analysts said they expect Sinopec's parent company to list the oil services operation separately in the long run, following the example of CNOOC Ltd. (CEO) and its sister company, China Oilfield Services Ltd. (2883.HK). Sinopec said it would seek independent shareholder approval of the deal at an extraordinary general meeting. It would also apply to the State-owned Assets Supervision and Administration Commission under China's State Council for approval, it said. It aims to complete the deal Dec. 31, 2004. -By Carmen Chan, Dow Jones Newswires; 852-2802-7002; carmen.chan@dowjones.com -Edited by Andrew Bullard
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