Sinopec sells $17.4bn retail unit stake

By Jennifer Hughes and Demetri Sevastopulo in Hong Kong and Lucy Hornby in Beijing. This article originally appeared on the Financial Times website, on September 14th, 2014

Chinese oil champion Sinopec is selling a $17.4bn stake in its retail unit to a large group of mostly domestic investors as the country tries to reform its sprawling state-owned enterprises.

The 29.99 per cent stake sale – to investors including tech group Tencent, private conglomerate Fosun and China Life Insurance – was considered a precedent-setting deal in China’s efforts to realise value in its SOEs, while also improving their performance.

But the deal, announced on Sunday, is far from the opening of the oil sector to outside forces that reformers had sought. Sinopec has ceded no control of its lucrative business while raising funds from a sprawling club of state-owned enterprises, leading private groups, pension funds and other Chinese investors.

The list of investors also includes Haier, a Chinese white goods maker; Hopu, a Chinese private equity group; Bank of China and ICBC, the giant state-owned banks; CICC, a domestic investment bank; and Cinda Asset Management, the state-controlled “bad bank” asset manager.

RRJ, a fund owned by Malaysian dealmaker Richard Ong, stands out as the only non-Chinese direct investor.

About two years ago China said outside capital would be allowed to invest in strategic state sectors – an announcement welcomed by some as opening the door to more private investment in closely held industries.

Sinopec has billed this sale as a prime example of that reform.

In August it said it was in discussions with 37 bidders for the stake in its retail business, which operates 30,000 petrol stations and holds 60 per cent of the domestic market for oil products. It also owns 23,000 convenience stores under the Easy Joy brand.

Stake sizes taken on Sunday range from 2.8 per cent of the total group to a 0.1 per cent holding. The price values the entire unit’s equity at about $59bn.

Last year the business produced Rmb25.1bn ($4.1bn) in profit from operating income of Rmb1.5tn.

In June Fu Chengyu, Sinopec chairman, said successful bidders would be determined by a combination of factors, including offer price, domicile, complementary strengths, standing and reputation, and level of conflicts of interest with Sinopec.

The company is one of China’s three dominant state-owned oil companies. Reformers have argued that their stranglehold on the oil sector raises costs for consumers, crowds out potentially more competitive firms, and allows them to hijack domestic and international policy to support their interests.

But Chinese policy makers view SOEs as a useful policy tool, and are reluctant to fully open strategic sectors such as oil to competition.

Sinopec was advised by Bank of America Merrill LynchCICCCitic Securities and Deutsche Bank.

Separately, Sinopec said it would reverse its oil services unit – one of its more active subsidiaries – into a Hong Kong-listed polyester maker.

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