State-controlled oil giant Sinopec Corp (中國石化) on Sunday unveiled a plan to sell a US$17.5 billion stake in its retail business, marking the country’s biggest privatization push since Chinese President Xi Jinping (習近平) came to power almost two years ago.
The sale is a reflection of the government’s drive to restructure the country’s many sprawling state-owned enterprises.
PetroChina (中石油), the nation’s No. 1 energy producer, has divested part of its pipeline business, raising billions of dollars from domestic institutional investors.
The sale also highlights Sinopec’s hope that outside investors would be a catalyst for growth and reform at its currently low-margin retail unit.
However, some analysts say a lack of retail names on the investor list is lowering their expectations of a quick turnaround. The presence of private equity firms also presents a risk in which they may exit the business when Sinopec lists the subsidiary in a couple of years.
Sinopec’s retail unit will issue new shares to a group of 25 largely deep-pocketed financial companies like insurers and funds, and raise 107.1 billion yuan (US$17.5 billion), the company said in a filing with the Hong Kong and Shanghai bourses.
The investors will get a combined 29.99 percent stake in the unit, which comprises a wholesale business, more than 30,000 petrol stations and more than 23,000 convenience stores, as well as oil-product pipelines and storage facilities.
Each investor would not hold a stake exceeding 2.8 percent.
Besides capital, the investors are expected to bring in “strength and vitality” that will help reform and grow the retail unit, Sinopec chairman Fu Chengyu (傅成玉) said in a statement.
Sinopec will use the US$17.5 billion from the sale to optimize its fuel retail business, boost non-fuel sales and pay down debts owed to the parent company, Chai Zhiming (柴志明), deputy chief executive of the retail unit, said in a telephone interview yesterday.
Sinopec is looking for expertise and ideas to boost its non-fuel businesses, which include convenience stores and services such as fast food and car washes.
Unlike the West, where non-fuel revenue can account for more than half of a filling station’s profits, more than 99 percent of Sinopec’s retail sales come from gasoline.
“Definitely, this is an area that has room for growth,” James Roy, associate principal of Shanghai-based business consultancy China Market Research Group, said of Sinopec’s non-fuel business.
Leading investors on the deal include one of China’s biggest asset managers, Harvest Fund Management Co Ltd (嘉實國際資產管理), which will pay 15 billion yuan for a joint stake with its subsidiary Harvest Capital Management. China Life Insurance (中國人壽) and a consortium including People’s Insurance Group of China Co Ltd (中國人保控股) and Tencent Holdings Ltd (騰訊) are each taking 10 billion yuan stakes.
Other investors include Fosun International (復星), China gas supplier ENN Energy Holdings Ltd (新奧能源) and white goods maker Haier Electronics Group Co Ltd (海爾).
Asia private equity firm RRJ Capital, founded by former Goldman Sachs and Hopu Investment Management (厚樸投資管理) dealmaker Richard Ong, is among the foreign investors in the deal, with a 3.6 billion yuan stake.
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