Why China’s Sinopec and Saudi Aramco cross paths in the international capital market

Sinopec, the world’s second largest oil refiner, and Saudi Aramco, the world’s largest crude oil producer, focus on different sections of the supply chain, but they share a common need to tap international capital markets as part of reform to enhance efficiency of state giants amid an uncertain outlook in the competitive oil industry.

Sinopec, formerly known as China Petroleum & Chemical, last Thursday said its board has approved a plan to separately list its fuel marketing unit, Sinopec Marketing, by selling around a 10 per cent stake to investors in an unspecified overseas stock market.

The deal “could help unlock hidden value” in the company, according to Sanford Bernstein senior analyst Neil Beveridge, who estimated two years ago the marketing unit to be worth 404 billion yuan (US$58.5 billion).

The listing exercise would see more of the firm sold to outside investors – a move aimed at improving its governance and helping it better tap new business opportunities – although Sinopec is expected to retain majority control. A 30 per cent interest was already been sold for 107 billion yuan to 25 investors in 2014.

Similarly, by listing and selling shares of Saudi Aramco, the Saudi government aims to unlock value in the state-owned crown jewel to bolster the Public Investment Fund of Saudi Arabia, so that the oil-dependent nation can diversify its future income – both industry wise and geographically.

An example of the diversification can be found in the fund’s US$45 billion commitment last December to the high-tech investment vehicle set up by Japanese telecommunications and internet giant SoftBank.