Sinopec details sale plan of fuel unit
Mainland oil giant aims to complete the sale of 30 per cent of marketing operations by third quarter, with the funds raised to help cut debt
China Petroleum & Chemical (Sinopec) aims to complete by the third quarter a fund-raising exercise for its fuel marketing operations to help cut debt, fund shale gas development and fuel quality upgrade programmes.
The nation's second-largest oil and gas producer and the world's second-largest oil refiner plans to set up a company to hold its motor fuel distribution operation, which includes 30,500 fuel stations, the world's largest, chairman Fu Chengyu said.
"We want to bring out the hidden value of the business," Fu said. "By spinning it off as an independent entity, its decision-making and operations can become more market-oriented."
Sinopec said late last month it planned to sell up to 30 per cent of the fuel marketing operation to non-state entities. The decision is seen as an answer to Beijing's call for state firms in monopolistic industries to invite private participation in their operations as part of state enterprise reforms.
Fu said the operation had assets of 300 billion yuan (HK$375 billion), but they needed to be confirmed through an independent valuation exercise.
He said strategic investors would be given priority in the initial round of fund-raising since they could add value by providing expertise to better run the company's fuel-station network, which lags behind those in developed markets in non-fuel sales, which are more lucrative than fuel sales.
Fu would not be drawn on whether a market flotation is on the cards at a later stage, saying the opinion of new shareholders would have to be considered.
Average annual fuel sales per station in Sinopec's network grew 6 per cent to 3,707 tonnes last year, after a 5 per cent rise in 2012. Non-fuel sales jumped 21.4 per cent to 13.4 billion yuan, after growing 33 per cent in 2012.
Fu said given the high sales growth, the network deserved a higher price-earnings multiple than that of Sinopec as a whole, at eight times.
"Globally, fuel marketing firms are trading at 25 times earnings on the high side, and 15 to 17 times on the low side," he said, adding mainlanders would be given priority to buy into the operation but overseas firms would also be welcome.
Fu also said Sinopec aimed to complete building the capacity to produce annually 5 billion cubic metres (bcm) of shale gas - hard-to-extract natural gas trapped in rock formations - by the end of next year, rising to 10 bcm by 2017. It aimed to produce this year 20 bcm of conventional gas, which is easier to extract.
It has hit success in explorations after spending 2 billion yuan in the past few years, finding more than 2 trillion cubic metres of geological reserves.
Sinopec's share price rose 3.62 per cent yesterday to HK$6.87 despite posting on Sunday a less-than-expected 3.5 per cent net profit growth to 66.1 billion yuan for last year.