China’s Sinochem to float oil refining, storage unit in US$2 billion Hong Kong IPO

The IPO comes as the unit’s parent prepares to merge with ChemChina in one of a string of deals by SOEs trying to shore up their stretched balance sheets

PUBLISHED : Tuesday, 31 July, 2018, 7:47pm
UPDATED : Tuesday, 31 July, 2018, 11:24pm

Sinochem Energy, China's largest commercial petroleum fuel storage company, aims to raise US$2 billion via an initial public offering in Hong Kong, according to a source close to the deal.

It is the first IPO of a central government-administered oil refining and trading firm since China Petroleum & Chemical (Sinopec)'s simultaneous listing in New York, London and Hong Kong 18 years ago.

The flotation comes as the unit’s parent, Sinochem Corporation, is close to merging with another state-owned firm, China National Chemical Corporation (ChemChina), according to a Caixin report earlier this month.

ChemChina last year completed the country’s biggest overseas acquisition ever, buying out Swiss pesticide firm Syngenta for US$43 billion to create the world's largest industrial chemicals firm, and raking up a huge amount of debt.

The impending merger is one of a string of mergers of central government enterprises aimed at shoring up their stretched balance sheets and enhance their competitiveness.

Beijing-based Sinochem Energy, which owns storage facilities with a combined capacity of 5.1 million tonnes, is 97.8 per cent owned by Sinochem Corporation whose operations span oil and gas, chemicals, agriculture, real estate and finance industries.

It is also one of the nation’s biggest oil and petroleum products traders, with 134 millions of throughput last year. As of March 31 this year, it operated 800 fuel service stations either by itself or with partners, with a combined 1 per cent market share.

Sinochem Energy is in the process of expanding its annual refining capacity from 12 million tonnes to 15 million tonnes, it said in its preliminary IPO prospectus lodged with Hong Kong Exchanges and Clearing on Monday. It did not provide a completion date.

The downstream facilities have the annual capacity to make a million tonnes of ethylene, a key chemical building block, and two million tonnes of aromatics that are used to make a wide array of consumer products.

Sinochem Energy said it has the nation’s largest combined commercial storage capacity for crude oil, refined petroleum and petrochemical products – excluding other firms’ facilities that are exclusive for internal use and the State Petroleum Reserve which it helps manage – citing a report it commissioned Nexant Commercial Information Consulting (Shanghai) to do.

Its integrated refinery and petrochemical complex, commissioned in 2014, is located in Quanzhou in Fujian province.

Sinochem Energy booked a net profit of 6.32 billion yuan last year, up 15.8 per cent higher from 2016. It generated a net profit of 1.59 billion yuan in this year’s first quarter.

Its listing comes as the oil and gas industry continues to see a recovery in profitability.

Sinopec late last month said it expected net profit for the first half to rise by about a half from a year ago, while PetroChina said on Monday it is likely to post a profit jump of 107 to 122 per cent for the same period. Both cited higher prices of crude oil, refined fuel and chemicals.

The IPO is sponsored by Morgan Stanley, CLSA and BOC International. Sinochem declined to comment on its IPO plan.