Sinopec to buy out subsidiary
By Wang Ying (China Daily)
Updated: 2005-11-15 06:40

China Petroleum & Chemical Corporation (Sinopec) will pay HK$7.672 billion (US$784 million) to buy shares of Sinopec Zhenhai Refining & Chemical Co Ltd (ZRCC) it does not yet own, to streamline its corporate structure and eliminate intra-group competition, the two companies said.

Sinopec and ZRCC said in a joint statement that both companies have agreed to a Sinopec buyout of ZRCC's 27.8 per cent shareholding for HK$10.6 (US$1.4) per share. That is a premium of 12.2 per cent to Zhenhai Refining's closing price of HK$9.45 (US$1.2) on November 2, before trade in the shares was suspended pending a buyout announcement.

The transaction aims to strengthen its core business competencies, said the statement.

"The proposed merger can consolidate Sinopec's resources, realize potential synergies and enable Sinopec to improve the utilization of capital resources by centralizing capital allocation and enhancing capital expenditure management," it said.

Sinopec will finance the payment with bank loans granted by the Industrial and Commercial Bank of China and Bank of China, according to the statement.

"The offer price is fair to all investors, including BP, which has a 9.41 per cent stake in Zhenhai Refining," Sinopec Chief Financial Officer Zhang Jiaren said yesterday.

And Sinopec has no plan to raise the price even if some shareholders disagree with the offer, he said. "The current offer price is reasonable to all parties."

Zhenhai's shares, which resumed trading yesterday, climbed by 8.5 per cent to HK$10.25 (US$1.3) in Hong Kong, still below the offer price. Zhang said ZRCC shareholders will not be paid until the beginning of April next year.

Beijing-based Sinopec became listed in 2000 and has said that it plans to take full control of all of its Hong Kong-traded units. The company on March 7 completed a HK$3.8 billion (US$487 million) offer to buy out 30 percent of Beijing Yanhua Petrochemical Co.

"We made this commitment after our IPO. We would like to buy back all our subsidiaries traded in Hong Kong and the Chinese mainland, when the time is right," Zhang said yesterday.

But there has not been a specific timetable for the consolidation plan, he added.

Sinopec has a number of subsidiaries listed in Hong Kong, the Chinese mainland and New York, including Sinopec Shanghai Petrochemical Co, Sinopec Yizheng Chemical Fibre Co and Sinopec Kantons Holdings Ltd.

Future targets in pursuit of Sinopec's privatization following the proposed buyout of ZRCC might include Shanghai Petrochemical Co and Yizheng Chemical Fibre Co, which are both listed in Hong Kong and the Chinese mainland, said Gordon Kwan, an oil and gas analyst with Hong Kong-based CLSA brokerage.

However, those units denied last week that Sinopec had any immediate plan to privatize them.

Yesterday Zhang also denied a media report that global giant BP would take a 30 per cent stake in Zhenhai once it becomes wholly-owned by Sinopec to increase its current 9.4 per cent stake

"So far, we haven't held any talks with BP regarding the share increase," Zhang told analysts and reporters yesterday.

Shares of Sinopec yesterday closed unchanged at HK$3.425 (44 US cents) on the Hong Kong Stock Exchange.

(China Daily 11/15/2005 page11)