CORRECTED - CORRECTED-Japan refiners to be stirred, not shaken, by merger
(Corrects paragraph 9 to name the UAE, not Kuwait, as one of the investors)
By Osamu Tsukimori and James Topham
TOKYO, Dec 5 (Reuters) - The merger of Japan's biggest and its sixth-largest refiners has resurrected hope that a long-awaited shake-up of the shrinking industry is nigh, but the scope of future activity may disappoint investors.
Hope of an integrated oil major emerging from the sector is likely to be dashed by top oil producer INPEX's reluctance to get dragged down by the refining business at a time of collapsing global margins; investors betting on more refining deals may be stymied by piecemeal sales or strategic Gulf investors.
And while analysts agree more rationalisation is needed to eliminate costly, loss-making facilities as demand in the world's No. 3 oil consumer shrinks, they say it's far from clear who might be next in line after Nippon Oil Corp (5001.T) unveiled a merger with Nippon Mining Holdings Inc (5016.T) on Thursday.
One thing seems clear -- a combined Nippon Oil/Mining, with one third of the market, can't get much bigger without drawing unfavourable attention from regulators.
That may rule out tightening existing ties with Idemitsu Kosan Co (5019.T), a firm that grew into Japan's third-largest refiner without a single merger in its century-long history.
"Idemitsu has tie-ups with Nippon Oil and Nippon Mining, and it's active on joint companies," said UBS analyst Toshinori Ito. "But a merger is unlikely."
One top candidate for sale is Exxon Mobil's (XOM.N) Japanese subsidiary TonenGeneral Sekiyu (5012.T), which industry sources have said for years is looking for a potential pullout from the Japanese market as part of a global strategy.
But years of quiet searching have turned up few eager buyers, forcing it to sell off the business bit by bit, as it did when it sold a small Okinawa refinery to Brazil's Petrobras this year.
Two others -- Royal Dutch Shell's (RDSa.L) Showa Shell Sekiyu KK (5002.T) and Cosmo Oil Co (5007.T) -- count top producers Saudi Arabia and the United Arab Emirates as cornerstone shareholders who have important strategic reasons for retaining a foothold in Japan, a country that buys more than a fifth of their crude exports.
"Cosmo and Showa Shell's main shareholders are different, so a merger is unlikely now," said UBS' Ito.
Saudi Aramco increased its stake in Showa Shell to 15 percent stake in 2005, while IPIC, the investment arm of the Abu Dhabi government of the United Arab Emirates bought 20 percent in Cosmo last year to become the top shareholder.
Cross-shareholding and strategic ties are common in Japan's clubby corporate world, but don't always lead to full-scale mergers.
Nippon Oil agreed a 10-year alliance with Nippon Mining's wholly owned refining unit Japan Energy in 2006, while Showa Shell took a 6.6 percent stake in a unit of Fuji Oil, the refining unit of AOC Holdings (5017.T), in 2005.
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