Sinopec to privatize subsidiary
HONG KONG: China Petroleum & Chemical Corp (Sinopec), Asia's largest oil refiner, confirmed yesterday that it would spend HK$3.846 billion (US$494 million) to privatize its subsidiary Sinopec Beijing Yanhua Petrochemical, the largest resin and plastics maker in China, in the first major move to streamline its petrochemical business.
Sinopec plans to offer HK$3.8 per share to buy the 30 per cent stake in Hong Kong-listed Beijing Yanhua, which is currently 70 per cent held by Sinopec. The privatisation offer price represents a premium of 10.94 per cent to Yanhua's closing price of HK$3.425 before trading was suspended on December 21.
Sinopec said the deal was a win-win solution and a reasonable valuation for both parties. The deal aimed to deliver the company's promise made during its listing in 2000 that it would take gradual steps to consolidate its group business which included 12 listed units.
"In addition, the deal will help consolidate Sinopec's resources and realize potential synergies, strengthen the group management as well as reinforce the business value chain of Beijing Yanhua and effectively eliminate intra-group competition," Zhang Jiaren, Sinopec's chief financial officer said at a conference call yesterday.
However industrial analysts said the deal will not give a strong boost to Sinopec as Sinopec's offer price is more than double Beijing Yanhua's net asset value as at December 31.
Without giving an earnings forecast in light of the deal, Zhang said the deal will boost Sinopec's earnings per share "slightly," reduce operating costs and general sufficient cash flow in the coming years.
The market has expected Sinopec would take similar moves to privatize its listed units such as Sinopec Yizheng Chemical Fibre, Sinopec Shanghai Petrochemical and Sinopec Kantons to further consolidate its operations.
But Zhang said the company has no timetable for privatization so far."Consolidating our business step by step is our promise to investors but we do not have a timetable or any specific target for the next step," Zhang said.
Meanwhile, Zhang also revealed that its average oil selling price for the fourth quarter was US$33 per barrel and that the refining margin would remain at about US$3.70 per barrel over the whole year, down from US$3.86 per barrel in the first three quarters.
Under the privatisation deal, Beijing Feitian, a wholly-owned subsidiary by Sinopec set up solely for the privatisation, will pay the cancellation price in cash to H shareholders of Beijing Yanhua, and at the same time, it will issue new registered capital to Sinopec before the completion of the merger. Beijing Yanhua will be delisted and eventually deregistered when the whole process is completed.
The deal is expected to be fully completed by mid-August next year as it is subject to approvals from shareholders of Beijing Yanhua and various mainland authorities as well as Hong Kong financial regulatory bodies.
Morgan Stanley and China International Capital Corp are financial advisers to Sinopec, while Bear Stearns and Lehman Brothers advise Beijing Yanhua.
Riding on the announcement of the privatisation, shares of Beijing Yanhua jumped 6.57 per cent to HK$3.65 yesterday, compared with a 0.72 per cent drop in the benchmark Hang Seng Index. Shares of Beijing Yanhua have already soared 13.2 per cent in the past month.
Sinopec's other unit Shanghai Petrochemical also rose 1.75 per cent to HK$2.9 as investors expected the subsidiary would undergo a similar shake-up in the future. However, Sinopec slipped 1.56 per cent to HK$3.15 because investors believed the deal would have little impact on the earnings.