UPDATE 2-Sinopec seeks private capital in multi-billion dollar retail arm revamp

Wed Feb 19, 2014 11:13pm EST

Related Topics

* Plans to let non-state investors buy up to 30 pct of retail oil arm

* Retail business owns more than 30,000 petrol stations

* Stake sale may create net cash inflow of over 50 bln yuan-M.Stanley

* Sinopec shares soar 9 pct in HK & Shanghai after surging in New York (Recasts with share move, comments from company source and analysts)

By Charlie Zhu

HONG KONG, Feb 20 (Reuters) - Sinopec Corp, Asia's largest oil refiner, plans to sell up to 30 percent of its retail oil business to private investors in a multi-billion dollar restructuring aimed at boosting the value of its sprawling downstream arm.

The proposed stake sale in state-run Sinopec's marketing arm, which owns more than 30,000 petrol stations, comes as China is looking at promoting private investment in the country's oil industry and vowed in November to let the private sector play a bigger role in the economy.

Private investors have long complained of a lack of access to the lucrative industry in the oil and gas sector of the world's largest energy user, which is dominated by Sinopec and other state oil giants such as PetroChina and CNOOC Ltd .

Sinopec shares soared about 9 percent in Hong Kong and Shanghai on Thursday morning in reaction to the news, following an 8.4 percent rally overnight in its New York-traded shares.

In a filing with the Hong Kong bourse late on Wednesday, the company said its board had passed a resolution to restructure the oil product marketing activities and "diversify the ownership by way of introducing social and private capital".

The board has authorised the company to bring in "social and private investors" who would acquire up to 30 percent of the business, said Sinopec, formally known as China Petroleum & Chemical Corp .

The statement gave no further details.

A person close to Sinopec's strategy on the restructuring told Reuters that Sinopec chairman Fu Chengyu hopes that a revamp of its massive marketing arm, which mainly includes more than 30,000 petrol stations across the country, and a sale of the stake to non-state investors would help revalue the business segment.

"Fu believes the marketing business has been seriously undervalued by the market," said the industry source, who spoke on condition of anonymity. "Also they hope to bring in some industry expertise to run gas stations in a more professional way and make more use of the vast retail network."

UNLOCKING VALUE

The marketing and distribution division of Sinopec, which also engages in oil and gas exploration and production, refining and chemicals production, accounts for nearly half of the group's annual total operating profits.

The segment posted an unaudited operating profit of 27.03 billion yuan ($4.46 billion) for the first nine months of 2013, down 10.5 percent year on year, partly because of a slowing Chinese economy.

The divestment should "enable Sinopec to begin to unlock the enormous hidden value within the company", Neil Beveridge, senior energy analyst at Bernstein Research, wrote in a note to clients.

Operating profit at Sinopec's marketing division is expected to rise to 52 billion yuan in 2015 from 42 billion yuan in 2013, Beveridge said.

Hong Kong-based analysts expect Sinopec to raise several billion dollars from the sale of a 30 percent stake in the marketing arm and use the proceeds to modernise and expand the business, lower the gearing ratio and boost investment in exploration and production.

Andy Meng, energy analyst at Morgan Stanley in Hong Kong, said the sale of 30 percent stake may create a net cash inflow of more than 50 billion yuan to Sinopec.

It is unclear whether Sinopec would divest the stake through a trade sale to investors or through an initial public offering of shares on the stock market.

The possibility of bringing in a foreign strategic investor into the marketing business also can't be ruled out, analysts said

Sinopec's move to take in private investors comes after PetroChina, the country's No. 1 oil and gas producer, divested part of its pipeline activities in the past two years, raising billions of dollars from domestic institutional investors. ($1 = 6.0673 Chinese yuan) (Reporting by Charlie Zhu and Meg Shen; Editing by Tom Pfeiffer and Muralikumar Anantharaman)

FILED UNDER: