Sinopec bond issue taps market for US$3.5b

PUBLISHED : Saturday, 20 April, 2013, 12:00am
UPDATED : Monday, 21 August, 2017, 9:06am

China Petroleum & Chemical (Sinopec), the second-largest oil and gas producer on the mainland, has raised US$3.5 billion from the third-biggest bond offering in Asia, excluding Japan, since 1995.

Sinopec, which was also the world's second-largest crude oil refiner by throughput last year, said in a statement to the Hong Kong stock exchange yesterday that the proceeds would be used to fund the acquisition of overseas assets from its parent firm, China Petrochemical, investments in overseas business and repayment of bank debt.

Sinopec's offering is the biggest after Hutchison Whampoa's US$5 billion issue in November 2003 and the South Korean government's US$4 billion note in April 1998, according to data provider Dealogic. It is divided into four tranches - US$750 million, US$1 billion, US$1.25 billion and US$500 million - with coupon interest ranging from 1.25 per cent to 4.25 per cent and tenures from three to 30 years.

The tranches were 3.1 to 5.3 times subscribed, a person close to the deal said, with the most interest coming from Asian funds.

Standard & Poor's Rating Service yesterday assigned an A-plus long-term rating to Sinopec's bond offer.

It expected Sinopec's profit to improve this year after Beijing reformed the national fuel pricing system to bring domestic prices closer to international levels.

Sinopec had suffered billions of yuan of operating losses in previous years on oil refining as Beijing kept fuel prices lower than international levels to protect those on low incomes when crude prices surged.

"Under the new mechanism, a company can revise its product prices more frequently to reflect the movement in crude oil prices," S&P said. "The move is likely to encourage industry players to compete on scale and efficiency."

But it warned that Sinopec might need to borrow more to plug a deficit in net cash flow to meet capital expenditures and fund asset acquisitions abroad.

Sinopec has budgeted 181.7 billion yuan (HK$228.1 billion) of capital expenditure this year, up 7.5 per cent from 169 billion yuan last year.

Last month, it said it would spend U$1.5 billion on a new joint venture with its parent firm. The venture will buy from China Petrochemical stakes in oil and gas producers in Kazakhstan, Colombia and Russia.

The book-runners for Sinopec's bond were Citigroup, Bank of America Merrill Lynch, UBS and JP Morgan.