Sinopec aims to complete mega marketing asset sale in third quarter

HONG KONG Mon Mar 24, 2014 5:33pm EDT

A Chinese New Year lantern installation is displayed outside a Sinopec gas station in Hong Kong February 5, 2013. REUTERS/Bobby Yip

A Chinese New Year lantern installation is displayed outside a Sinopec gas station in Hong Kong February 5, 2013.

Credit: Reuters/Bobby Yip

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HONG KONG (Reuters) - State-run oil giant China Petroleum and Chemical Corp (Sinopec Corp) (0386.HK) aims to complete the sale of up to 30 percent of its sprawling marketing business in the third quarter of this year, a restructuring analysts say could raise $10-$20 billion.

Sinopec (600028.SS) unveiled a plan last month to restructure the business, which includes over 30,000 petrol stations - the world's largest fuel retail network - and more than 20,000 convenience stores at these stations. The business also includes oil-products pipelines and storage facilities across China.

Chairman Fu Chengyu told reporters on Monday Sinopec plans to set up a holding company for the marketing assets - with a current unaudited value of around 300 billion yuan ($48.19 billion) - by the end of March and will start to bring in capital from around the end of June.

"The restructuring will be one of the two strategic measures taken by our company this year. Our marketing business (has) huge potential that has yet to be unlocked," Fu told the briefing a day after Sinopec reported its 2013 earnings.

The company's other top priority this year is to develop its shale gas business, Fu said, adding that Sinopec was targeting production capacity of 5 billion cubic meters by 2015 and 10 billion cubic meters by 2017.

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The aim of the restructuring is to boost the value of the low-margin marketing business, shore up the group's deteriorating finances and reinforce investment in exploration and production, analysts say.

Fu said Sinopec will use funds raised from the sale to boost shale gas output and upgrade refineries.

Sinopec is seeking both domestic and foreign investors, preferably companies with sales experience in sectors other than energy, but priority will be given to domestic institutions as per the government's policy to share the "dividend" of China's economic growth, Fu said.

Deep-pocketed domestic financial investors would be the most likely buyers of Sinopec's marketing business, industry specialists said, partly because these institutions would be content with a minority stake and a longer investment horizon.

A person familiar with Fu's thinking told Reuters Sinopec was keen to partner with an e-commerce company to make most use of its retail network.

Sinopec is putting its marketing business on sale after the government pledged in November to let the private sector play a bigger role in the economy.

Industry specialists familiar with global oil majors' downstream strategies say Royal Dutch Shell (RDSa.L), Exxon Mobil (XOM.N) and BP (BP.L) may all shun the sale due to an expected lack of management control of the business.

Globally, most of them are also shrinking their downstream operations to focus on high-margin exploration and production activities.

On Sunday, Sinopec reported a 35 percent drop in fourth quarter net profit, steeper than expected, as improved profitability at its refining division was offset by a dip in upstream earnings.

It said it would cut capital expenditure to 161.6 billion yuan ($25.96 billion) this year from 168.6 billion yuan in 2013 - which was already seven percent lower than budgeted.

Shares in Sinopec, which has a market value of $98 billion, closed up 3.6 percent in Hong Kong on Monday, beating a 1.9 percent gain for the benchmark Hang Seng Index .HSI.

($1 = 6.2250 Chinese yuan)

(Fixes typo in first paragraph)

(Additional reporting by Twinnie Siu; Editing by Anne Marie Roantree and Miral Fahmy)

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