State fund to help Sinopec parent acquire overseas assets

PUBLISHED : Saturday, 22 December, 2007, 12:00am
UPDATED : Saturday, 22 December, 2007, 12:00am


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China Investment Corp is planning to inject funds into China Petrochemical Corp (CPC), the parent company of Sinopec Corp, to help it acquire overseas assets, the China Business News reported yesterday.

The move comes hard on the heels of the state investment fund's US$5 billion cash injection into Wall Street bank Morgan Stanley and will be its second investment in a state-owned enterprise after buying US$100 million worth of shares in China Railway Group last month.

CIC refused to confirm the plans yesterday while China Petrochemical and Sinopec were unavailable for comment.

'CIC will not comment on media speculation,' a spokesperson for the state investment fund said.

CPC is the first enterprise to receive financial support since the State-owned Assets Supervision and Administration Commission (Sasac) agreed that CIC should provide capital to state-owned enterprises expanding overseas, the newspaper said.

The details of how the cash injection will be managed have yet to be settled. One likely possibility is that CIC would work with Sinopec's parent on developing projects overseas and then transfer the assets to the listed company, according to an unidentified source cited by the newspaper.

At present CPC owns all the group's overseas assets, although Sinopec has said that it would not rule out buying overseas oil fields from its parent in the future.

'Unlike PetroChina and CNOOC, Sinopec's overseas expansion plans are still managed by the parent. Any funding injection for overseas expansion would go to the parent,' said Gideon Lo Wai-yip, an oil analyst at DBS Vickers Securities.

'They will probably wait until the overseas assets can provide good profits before injecting them into the listed company.

'The deal will have to be beneficial to the listed company to stop investors from worrying about the investment risk of the overseas development.'

CIC's cash injection into CPC supports the view that the fund will be as much a funding mechanism for state enterprises as a dreaded sovereign wealth fund pillaging international markets.

CIC has said it has more than US$130 billion of foreign exchange to invest in domestic companies while Sasac has told the 150 or so enterprises under its care that they will need to expand overseas to become globally competitive.