Bloomberg News

Sinochem Plans $5.5 Billion Shanghai IPO to Fund Refinery

November 13, 2011

(Updates with refinery capacity in second paragraph.)

Nov. 11 (Bloomberg) -- Sinochem Corp. plans to raise as much as 35 billion yuan ($5.5 billion) in an initial public offering to fund an oil refinery project, in what would be China’s sixth-biggest IPO.

The country’s largest supplier of chemical products aims to sell as much as 26.5 billion new shares in Shanghai, according to a statement posted on the Ministry of Environmental Protection’s website yesterday. The unit of Sinochem Group will use the proceeds to finance a 12 million metric-ton-a-year, or 241,000 barrel-a-day, refinery in Fujian, the statement said.

Companies have raised $37 billion in China IPOs this year, more than double the proceeds in Hong Kong, according to data compiled by Bloomberg. The Sinochem IPO comes less than a month after Sinohydro Group Ltd., the country’s largest builder of hydroelectric dams, raised 13.5 billion yuan in what was the biggest offering this year, Bloomberg data show.

“This will open up the floodgates for IPOs,” said Sandy Mehta, chief executive officer at Hong Kong-based Value Investment Principals Ltd. Chinese stocks “are very cheap in terms of valuation, and the bearishness on the economy and banks is way overdone. China has now stopped tightening,” he said.

The benchmark Shanghai Composite Index has slumped 11 percent this year as China raised interest rates and curbed bank lending to tame inflation. Sinohydro has fallen 6.8 percent since it started trading on Oct. 18.

Inflation cooled in October, while home sales fell and industrial output grew at the slowest pace in a year. Most economists expect China to loosen fiscal or monetary policy without cutting interest rates, a Bloomberg survey showed.

Refining in China

State controls on fuel prices in China mean refiners can’t fully pass on crude costs to consumers. The government may allow fuel suppliers including China Petroleum & Chemical Corp. and PetroChina Co. to adjust prices on their own, China Securities Journal reported on Nov. 4, citing an unidentified person.

“The key is China’s policy changes when Sinochem’s Fujian plant is completed in a couple of years,” said Shi Yan, Shanghai-based energy analyst at UOB-Kay Hian Ltd. “If higher retail prices are allowed, the plant will be very profitable.”

Sinochem, based in Beijing, is China’s fourth-largest oil company and also has assets in agriculture and real estate, according to its website. The company said it had a profit of 9.1 billion yuan last year on 335.3 billion yuan of revenue.

Sinochem Group

Its parent is listed as a key state-owned company under the nation’s State-owned Assets Supervision and Administration Commission of the State Council. Sinochem Group, China’s largest fertilizer trader, was named as a potential bidder for Potash Corp. of Saskatchewan Inc. last year during BHP Billiton Ltd.’s failed $40 billion takeover offer.

The group had explored taking a majority stake in Saskatoon, Saskatchewan-based Potash Corp. and was looking to involve Canadian pension funds or other Canadian investors to boost support for a deal, people familiar with the plan said last year.

Sinochem is the parent of a number of listed companies such as Sinochem International Corp., Sinofert Holdings Ltd., Franshion Properties China Ltd. and Far East Horizon Ltd., according to the website.

China Railway Materials Commercial Co. is also planning an initial public offering to finance 14.7 billion yuan of projects, according to a statement from the company posted on the Ministry of Environmental Protection’s website yesterday.

--Michael Wei and Alfred Cang in Shanghai, and Guo Aibing in Hong Kong. With assistance from Zijing Wu in London and Philip Lagerkranser in Hong Kong. Editors: Ryan Woo, Keith Gosman.

To contact the reporters on this story: Michael Wei in Shanghai at mwei13@bloomberg.net; Bloomberg News in Shanghai at acang@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net.


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