Sinopec Engineering loses US$1.85b contract
Shares of Sinopec Engineering, the refinery and chemical plant construction unit of China Petrochemical, slid 2.1 per cent in early trading on Thursday morning after the firm said it lost a US$1.85 billion contract.
China Petrochemical is also the parent of listed oil and gas major China Petroleum & Chemical, widely known as Sinopec.
Sinopec Engineering said “ongoing clarifications and negotiations” with Kazakhstan Petrochemical Industries had not yielded an agreement on “key commercial conditions and other aspects”.
This resulted in the mutually agreed termination of a contract signed in June last year to provide engineering, procurement and construction services to the state-backed chemicals maker in Central Asia.
No payment has been made by the Kazakhstan firm, and no revenue was booked by Sinopec Engineering on the contract.
The US$1.85 billion value of the contract will be deducted from Sinopec Engineering’s order backlog, which stood at 104 billion yuan (HK$131 billion) at the end of last year, reducing the backlog by roughly 11 per cent.
An updated figure for the backlog will be announced when the firm releases its interim results later this month.
In February, Sinopec Engineering said it had received a written notice from Wyoming, United States-based Medicine Bow Fuel & Power, which sought to terminate three agreements signed in 2012 on engineering, procurement and construction work on a plant that would turn coal into gas and liquid fuel. They were worth a total of about 10.5 billion yuan.
A demand for arbitration was filed by the US firm, seeking damages and claims for alleged breach of contract. Sinopec Engineering denied the claims, of which it did not give details, and said it would defend itself vigorously against them.
Sinopec Engineering shares traded at HK$8.98 at 10.37am.