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CRE nears asset disposal deal

Consumer product giant could reap hefty gains from sell-off as it speeds up move to pull plug on oil, petroleum and ports

Consumer product giant China Resources Enterprise's move to pull out of the oil, petroleum and container terminal markets has gained momentum, with a deal to shed part of these assets expected in the next few months.

Negotiations were already in the final stages and the group could net a one-off gain of 'billions of dollars' from the sell-off, sources said.

The group aimed to boost its war chest with the proceeds in a bid to further expand into the retail and brewery sectors in Hong Kong and the mainland, brightening the prospect for a bonus dividend this year, some analysts said.

'There has been some breakthrough in the negotiations,' a source said yesterday.

A company spokeswoman declined to comment.

China Resources, a State Council investment firm, is shifting its focus to become a pure consumer product play in supermarkets, apparel, breweries, textiles and food distribution.

The assets in question are the distribution, wholesale, transportation and storage of petroleum, chemicals and liquefied petroleum gas (LPG) products in Hong Kong, with a distribution network of about 100 wholesale agents.

The company also plans to divest itself of 20 petrol/LPG filling stations in Hong Kong and five on the mainland as well as its piped gas business in Chengdu, Wuxi, Taizhou and Fuyang.

The port assets are primarily a 10 per cent stake in HIT Investments, which operates a deepwater container terminal in Kwai Chung, and Hutchison Ports Yantian Investments, which operates the fast-growing container port in Yantian, Shenzhen.

ABN Amro analyst Fan Cheuk-wan expected the sale of the non-core assets would be executed in two phases to avoid creating a sudden earnings shortfall.

'I believe there is a good chance the company will share the proceeds with shareholders through a special dividend, given the history of special payouts after the disposal of Hong Kong Chinese Bank and the spin-off of China Resources Cement Holdings,' she said.

Ms Fan valued the oil and petroleum assets at $7 billion, assuming they would be sold at a price-earnings ratio of 15 times on this year's earnings. The port assets were valued at $5.6 billion at the same price-earnings ratio.

She added that hefty gains were expected from the disposal of the oil and petroleum assets in the wake of China Resources' low purchase price of $2.6 billion from its state-owned parent in 2000.

UBS analyst Selina Sia expected the proceeds to come to at least $10 billion.

'Besides paying off debts, the proceeds will also be used to enhance existing core operations, probably through acquisitions, and pay special dividends,' Ms Sia said.

A Thomson First Call poll showed a profit consensus of $1.93 billion for China Resources this year, 13.05 per cent lower than last year, during which earnings were boosted by non-recurring gains from offloading some petroleum joint ventures in Guangdong.