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It will invest 3b yuan for 75pc stake in deal with parent firm

China Petroleum & Chemical Corp (Sinopec), Asia's biggest oil refiner, is to buy from its parent company, China Petroleum Corp, a controlling stake in a 12 billion yuan oil refinery and port in Hainan province.

Sinopec said it will invest 2.99 billion yuan to buy 75 per cent of refinery and port owner Hainan Petrochemical, a wholly owned subsidiary of China Petroleum.

China Petroleum, Sinopec's unlisted parent firm, will hold 25 per cent of Hainan Petrochemical and invest 997 million yuan, the combined investments boosting the unit's registered capital to 3.99 billion yuan.

The difference between this and the 11.96 billion yuan total investment will be paid with bank loans, Sinopec said.

Sinopec is adding capacity amid surging demand from China's booming economy and as the government seeks to cut the country's imports of refined oil products.

Hainan Petrochemical refinery, which is undergoing tests following completion in August, is designed to process about 7.3 million tonnes of crude oil and will add about 5 to 6 per cent to Sinopec's  refinery capacity, an analyst said.

The associated port, which can accommodate 300,000-tonne oil tankers, can significantly reduce Sinopec's crude oil transport costs, the company said.

Hainan Petrochemical has an annual production capacity of 483,000 tonnes of liquefied gas, 2.37 million tonnes of  petrol and 3.86 million tonnes of diesel.

It can also produce smaller quantities of jet fuel, polypropylene, benzene and sulphur.

Sinopec refined 140 million tonnes of crude oil into fuels last year, 5.5 per cent more than in 2004.

The company, which supplies about 80 per cent of the country's fuels,  had a 16.6 billion yuan first-half loss from refining, more than 10 times the 1.3 billion yuan it lost a year earlier on increased crude costs and a government-imposed limit  on its selling prices.

China has raised  petrol prices twice this year and further increases are widely expected before the end of the year to encourage refiners to expand capacity and reduce reliance on imports.

Sinopec shares rose  1.87 per cent  to close at HK$4.90 yesterday. The stock has risen 12 per cent in the past three months.

Merrill Lynch this week revised  Sinopec's  earnings forecast for this year by 10 per cent to 43.39 billion yuan from 39.41 billion yuan to reflect a lower fourth-quarter crude price.

The investment bank has cut its fourth-quarter crude price forecast to US$61 per barrel from US$67.

It cited a weaker than expected supply-demand balance, high inventory levels and the possibility of a warmer than normal winter in the northern hemisphere.

The bank adjusted its  full-year crude price forecast for this year to US$66 per barrel from US$67.50. Merrill left its  forecast for next year unchanged.



Sinopec takes over Hainan refinery