Beijing hands Sinopec a 5b yuan surprise

PUBLISHED : Thursday, 28 December, 2006, 12:00am
UPDATED : Thursday, 28 December, 2006, 12:00am

Unexpected payout for price-control losses sparks rally in company's shares

China Petroleum and Chemical Corp (Sinopec), Asia's largest crude oil refiner, saw its share price rise as much as 6.99 per cent yesterday after it announced a five billion yuan windfall from the central government to compensate for losses due to price controls.

The handout, while unexpected by the market as the management had earlier said a 10 billion yuan subsidy the company received a year earlier was a one-off event, was far short of the 29.18 billion yuan refining operating loss it suffered in the first nine months of this year.

The company's H shares surged to as high as HK$7.19, a record since their listing in 2000, before closing at HK$6.92, up 2.98 per cent on the previous close.

The refiner's A shares closed 1.55 per cent higher at 9.15 yuan after rising 8.4 per cent on Tuesday.

Daiwa Securities analyst Rachel Tsang Wai-ming said the latest direct subsidy, while helpful to Sinopec, underscored imperfections in the mainland's policies for the refining industry.

'The government this year has raised refined oil prices, imposed a windfall tax in upstream oil production and used the proceeds to subsidise fuel users and Sinopec,' Ms Tsang said. 'The objective was to eliminate losses suffered by refiners, but it turns out Sinopec remains a big loser.'

The government had planned to tie movements of domestic refined oil prices to changes in international crude oil prices and let refiners earn a fixed profit margin this year.

Concerns about possible social unrest led the government to hold back from liberalising prices of refined oil, although industry talk indicated this might happen as early as next month after a sharp correction in crude oil prices.

Ms Tsang said domestic refined oil prices were on par with regional prices, making it easier for Beijing to launch a domestic pricing reform.

She estimated that Sinopec's overall net profit would reach 54.3 billion yuan this year after the subsidy and that the company would pay 8.3 billion yuan in oil production windfall levy.

BOCI analyst Lawrence Lau estimated Sinopec's net profit would be 55 billion yuan.

Sinopec said in a statement to the Hong Kong stock exchange the five billion yuan subsidy was a one-off and taxable.

Subsidiary Sinopec Shanghai Petrochemical said its share of the subsidy was 282.14 million yuan.

The company's H shares rose as much as 4.55 per cent before closing at HK$3.85, up 2.94 per cent on the day.