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Sinopec's ability to secure commitment from 25 investors for the fuel unit stake shows the broad appeal of the business. Photo: Reuters

Investors dump Sinopec shares on fuel unit deal

Concerns grow over whether the 25 buyers can bring value to the convenience-store operations

Sinopec

China Petroleum & Chemical (Sinopec) saw its shares drop 6.8 per cent yesterday after it agreed to sell 30 per cent of its fuel distribution unit to 25 investors for 107 billion yuan (HK$135 billion) since a lack of big-name retailers in the buyers' list raises question on the strategic value they will bring.

The country's second-largest oil and gas producer closed at HK$7.25, the lowest in almost two months, but still 20 per cent higher than when it first unveiled the stake sale plan in late February. The Hang Seng Index recorded a 7.5 per cent gain.

"Investors are selling on good news, given the lack of retailing giants. Some people are questioning whether the value they will bring to improve Sinopec's convenience-store operation is as much as expected," said Nomura's head of regional energy research Gordon Kwan.

Sinopec's fuel unit, Sinopec Sales, signed preliminary agreements in late July to co-operate with Taiwanese retailing major Ruentex Group on joint merchandise procurement and to jointly operate up to 300 convenience stores at Sinopec's service stations by the end of the year. Ruentex was not among the 25 investors who bought the unit.

Home appliance major Haier Electronics Group has agreed to buy 0.34 per cent of Sinopec Sales and a firm controlled by China Huiyuan Juice Group's parent will take a 0.84 per cent stake. Both have agreed to co-operate with Sinopec on cross-selling and logistics.

"With 25 [firms] participating, there will be questions as to the effectiveness of the consortium to drive reform, [but] it also highlights the broad appeal of this business," said Sanford C. Bernstein analyst Neil Beveridge.

A 16 per cent fall in oil prices since June and the emergence of Sinopec Yizheng Chemical Fibre as the listing vehicle of the oilfield services unit of Sinopec's parent China Petrochemical Corp also prompted investors to switch from oil and gas producers to service providers, Kwan said.

On Friday, Yizheng said it would sell all of its polyester products production operation to Sinopec and buy all of Sinopec Oilfield Service Corp for 24 billion yuan by issuing shares.

A Barclays research report said Sinopec Oilfield Service posted a net profit margin of 1 to 2 per cent between 2011 and last year, much lower than the 7 to 15 per cent at privately owned firms.

This article appeared in the South China Morning Post print edition as: Investors dump Sinopec shares on fuel unit pact
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