China Petroleum & Chemical Corp. (386) will raise HK$24 billion ($3.1 billion) in its biggest share sale since listing in 2000 as it looks to add production assets.
Asia’s biggest refiner, known as Sinopec, will sell 2.85 billion Hong Kong-traded shares at HK$8.45 each, 9.5 percent less than yesterday’s close, according to a filing after the market closed. Sinopec fell 7 percent to HK$8.69 at 11:30 a.m. in Hong Kong, a level 24 cents above the offer price.
Sinopec’s state-owned parent bought a $2.5 billion stake in a Nigerian oil field owned by Total SA in November and is in talks to buy more than $1 billion of African assets from Afren Plc (AFR), people familiar with the matter said this week. Adding oil- producing assets would help Sinopec offset refining losses spurred by Chinese government price controls.
“Sinopec will most likely use this money to buy upstream assets from the parent, which have better margins than the refining business.” Gordon Kwan, a Hong Kong-based analyst at Mirae Asset Securities, said by phone today.
Sinopec plans to use the money for “general corporate purposes,” it said in the statement, without giving more details. The share sale is the second largest in Asia this year, after Industrial Bank Co.’s $3.8 billion offering last month.
Sinopec may buy $8 billion worth of assets outside of China from its parent, China Petrochemical Corp., the Wall Street Journal reported last month. Before the share sale, the Beijing- based company’s stock had risen 6.4 percent this year in Hong Kong trading, compared with a 4.5 percent gain in the city’s benchmark Hang Seng Index.
“The company will be able to enrich its shareholder base by attracting a number of high caliber investors to participate in the placing,” Sinopec said in the filing. The company didn’t identify any of the investors. Lv Dapeng, a Beijing-based spokesman for Sinopec, didn’t answer two calls made to his office.
Sinopec has struggled under a heavy debt load and Chinese price controls that have damped profitability from processing fuel. Those factors have forced the Beijing-based company to look for oil producing assets that can offset refining losses, said Erica Downs, a fellow at the John L. Thornton China Center at the Brookings Institution, a U.S.-based research group, in Washington.
“It’s always been a long-term goal of the Chinese government to reduce their holdings in the listed units of the big three oil companies,” Mirae’s Kwan said.
The company’s oil and natural gas production increased 4.8 percent last year, with the majority of growth coming from overseas assets. Overseas crude oil production increased 18 percent, while Chinese domestic output was up about 1 percent from a year earlier.
“Sinopec has been hurt the most by these price controls and they see upstream assets as necessary to offset any losses in the downstream,” Downs said in a phone interview yesterday.
Sinopec’s parent China Petrochemical Corp. has traditionally been more acquisitive overseas than its publicly traded unit, she said.
As Sinopec seeks additional investors, buying assets from the parent company may be the most attractive way to seek income streams to offset refining losses, she said.
“There are probably reduced risks to buying from your parent company to venturing overseas,” she said. “It would be a way to build your portfolio very quickly.”
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