Intentions are misunderstood by the market, says the buyer's chief financial officer CNOOC's controversial acquisition of a stake in its parent's finance subsidiary has received the thumbs-down from investors and analysts, but the company's finance chief has defended the move, saying it will cut costs and bring in profits. The company's shares yesterday closed 3.43 per cent lower at $14.05 after analysts questioned the rationale behind the deal and raised doubts over its strategic fit into CNOOC's core business. They said the deal represented an unnecessary diversification into an unrelated business, while it was difficult for the finance subsidiary to balance the interests of its own profitability and that of its customers, including CNOOC. China's dominant offshore oil producer bought a 31.8 per cent stake in CNOOC Finance Corp from parent China National Offshore Oil Corp for 450 million yuan (HK$421.83 million). As the price was less than 3 per cent of CNOOC's net asset value, it was not subject to shareholders' approval. CNOOC Finance provides financial services to China National's member firms. It takes time deposits of more than three months, issues debt, provides loans and lease financing and factoring services, as well as investing in marketable securities. 'The financial impact of the deal is insignificant as it's only around 1 per cent of net asset value, but the strategic reason is very hard to understand,' BNP Paribas Peregrine head of China research Eva Chu Wen-yee said. UOB-Kay Hian analyst Michael Lee said the transaction contradicted CNOOC's emphasis of focusing on oil and gas exploration and production. 'There is no relation, no reason and no synergy,' he said. A BOC International research report said the transaction, part of a restructuring among China National and its subsidiaries, 'was not handled in the best manner' despite its small size. CNOOC chief financial officer Mark Qiu Zilei, who is in Scotland presenting the company's interim results to investors, said that the market had misunderstood the transaction. He said the deal should not be seen as an acquisition, as CNOOC was supposed to be a founding member of CNOOC Finance and was merely paying its pro-rata share of its registered capital of 1.41 billion yuan. CNOOC could save on transaction costs by dealing with CNOOC Finance, he said, adding that after the acquisition, CNOOC would be entitled to share CNOOC Finance's net profit of more than 100 million yuan since the latter's inception in June last year. A Beijing-based finance manager at a large international oil firm said because the interest spread between borrowing and lending rates at mainland financial institutions was higher than international levels, CNOOC could reap savings by dealing with CNOOC Finance instead of mainland banks. A senior manager who has worked for several international oil companies said the oil giant also had internal treasury departments performing similar functions to that of CNOOC Finance, but they were not independent subsidiaries or profit centres. He doubted if CNOOC Finance had better cost efficiency compared with commercial banks given its small operating scale. The deal is scheduled to be completed tomorrow.