China’s state-owned pipeline giant PipeChina kicks off industry restructuring with US$460 million acquisition
- PipeChina, formed in December, pays a 43 per cent premium above the net asset value for Sinopec Kantons’ 900km Yulin-Jinan pipeline
- Daiwa analyst says the sale bodes well for the spin-off of other pipeline assets owned by Chinese oil giants
Chinese oil and gas companies surged on Wednesday after new state-owned energy pipeline company China Oil & Gas Pipeline Network Corp (PipeChina) announced its maiden acquisition worth 3.2 billion yuan (US$460 million).
PipeChina, formed in December to hold pipeline assets owned by the nation’s three state oil and gas companies, has bought a 100 per cent stake in the Yulin-Jinan pipeline from Sinopec Kantons. It is part of Beijing’s energy sector reform to incentivise domestic exploration and production investment to stem rising imports and enhance energy security.
The selling price is 43 per cent higher than its net asset value of 2.2 billion yuan, above the expected 20 per cent premium, according to Sanford Bernstein senior analyst Neil Beveridge. The price represents 19 times its net profit of 173 million yuan last year, which has fallen from 236 million yuan in 2018.
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“The [deal] details provide positive read across for PetroChina and [sister firm] Kunlun Energy,” Beveridge wrote in a note, adding that “The pipeline [restructuring] is the most significant reform of the Chinese oil and gas industry since the IPO of the Chinese oil majors 20 years ago.”