China Petroleum & Chemical Corporation, or Sinopec Ltd, is a Beijing-based oil and gas company which is listed in Hong Kong, Shanghai and New York (NYSE: SNP). It is one of the world’s biggest companies by revenue. Sinopec Ltd’s parent, Sinopec Group is one of China’s biggest petroleum groups.
Ruentex pact paves way for Sinopec retail spin-off
Agreement with the Taiwanese group is expected to help the oil giant negotiate better terms with potential investors for its fuel retailing unit
China Petroleum & Chemical Corp's (Sinopec) pact with Taiwanese retailing major Ruentex Group last week will help the oil giant negotiate better terms with potential investors and business partners for the fuel retailing business that it plans to spin off on the stock market, analysts say.
A memorandum of understanding between the two firms called for joint merchandise procurement to cut costs, operating together Sinopec's convenience stores at its petrol stations in Shanghai as a pilot, and potential e-commerce co-operation, Sinopec said last Tuesday.
"This is a smart move," said BNP Paribas head of Asia energy research Por Yong Liang. "The pilot in Shanghai will give it the opportunity to see if the strategic partner can make a difference in boosting its non-fuel sales. By making the agreement public, it also puts pressure on other interested potential partners and strategic investors to offer better terms and pricing."
As part of state firms' reform, Sinopec said it would sell up to 30 per cent of its fuel retailing business to non-state strategic and financial investors to enhance governance and efficiency.
Chairman Fu Chengyu said in March that the firm aimed to complete the sale by the end of next month.
"Many [potential] investors have expressed interest in participating [in the stake sale] and have made contacts with us," Sinopec said.
Ratings agency Standard & Poor's estimated the sale would raise 80 billion yuan (HK$100.5 billion) to 100 billion yuan, which would help Sinopec cut debt and fund potential purchases of its parent's overseas oil and gas production assets as its domestic oil fields age.
It said in June that the investors would be chosen based on their offer price, potential as a future partner and industry standing, adding that their main business should not significantly conflict with that of Sinopec Sales.
Fu said Sinopec Sales could eventually be separately listed, depending on the wishes of the new shareholders.
Domestic investors, particularly those with retail expertise, will be given priority to invest since they could help Sinopec, the country's second-largest oil and gas producer, better run its retail business, especially in non-fuel sales.
Sinopec Sales runs 30,500 petrol stations and has a 60 per cent share of the mainland's fuel retailing market by tonnage. It also operates 23,431 convenience stores trading under the brand Easy Joy.
A BNP research report said Sinopec's non-fuel sales per convenience store were only an eighth that of the mainland average last year and 39 to 58 per cent those of its international peers.
In developed nations, petrol stations typically sourced half or more of their profits from non-fuel sales, Sinopec said. Non-fuel sales at Sinopec Sales accounted for just 1 per cent of the total in the first four months of this year.
A financial-to-distribution conglomerate controlled by Taiwanese entrepreneur Samuel Yin, Ruentex entered the retailing business in 1996 by establishing RT-Mart in Taiwan.
At the end of last year, the mainland's largest hypermarket chain Sun Art Retail Group, controlled by Ruentex, operated 264 outlets under the RT-Mart brand and 59 others under the Auchan brand, mostly in prefecture-level or smaller cities. Nearly half of them are in eastern China.
Ruentex also operates about 600 convenience stores under the C-Store brand. Set up in Shanghai in 2001, the are mostly in the mainland's eastern regions, and to a less extent the southern.
C-Store's website said Ruentex's annual procurement volume exceeded 70 billion yuan.
Sinopec did not respond to queries on whether Ruentex would become a strategic investor in Sinopec Sales, whether the Shanghai pilot would be co-branded or if it would cooperate with other firms on other non-fuel businesses like car maintenance and advertising.
The firm signed a framework cooperation agreement in May with China Taiping Insurance to sell car and life insurance at its petrol stations. It expects the cooperation could cover 1,500 stations by the end of this year.