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Deal marks watershed for PetroChina
By Fu Chenghao |
May 26, 2009, Tuesday
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Print Edition
Print Edition
PETROCHINA Co's agreement to buy Singapore Petroleum Co marks a milestone for the company to venture abroad although the deal size is not significant.
China's top oil producer agreed to buy 45.5 percent of the Singapore refiner for S$1.47 billion (US$1.02 billion), which on completion would trigger a general offer to buy the rest of the firm, it said on Sunday.
The deal would be PetroChina's first overseas acquisition in a public company, in line with its strategy of acquiring overseas assets.
"This should be a landmark as PetroChina is acquiring overseas stake directly (rather than via its state parent before), and we expect Sinopec Corp to follow suit," China Merchants Securities analyst Qiu Xiaofeng said, referring to the China's second-largest oil firm.
The acquisition will become a new platform to implement the company's international strategy and provide a broader foundation and stable path for development, PetroChina said.
The deal also comes after China unveiled a new fuel pricing mechanism in December which ensures refiners a profit by linking gasoline and diesel prices to global prices.
"The SPC deal gives PetroChina immediate access to increased refining capacities to take advantage of higher domestic prices down the road," Mirae Asset Securities analyst Gordon Kwan said. "On the flip side, if China fails to enforce the domestic refined product pricing reform, PetroChina can utilize SPC as an 'export' vehicle to sell fuel prices at international levels."
The total potential size of the deal is less than 7 percent of PetroChina's budgeted capital expenditure this year and there's little impact on earnings as SPC's profit of US$175 million represents less than 2 percent of PetroChina's expected earnings this year, Kwan said.
Still, Goldman Sachs said the deal is strategically questionable given Singapore's small domestic petroleum market, a bearish outlook for regional refining sector this year and next due to supply overhang, and SPC's old refinery has lower yield compared with PetroChina's.
PetroChina rose 1.87 percent to 13.10 yuan in Shanghai yesterday.
China's top oil producer agreed to buy 45.5 percent of the Singapore refiner for S$1.47 billion (US$1.02 billion), which on completion would trigger a general offer to buy the rest of the firm, it said on Sunday.
The deal would be PetroChina's first overseas acquisition in a public company, in line with its strategy of acquiring overseas assets.
"This should be a landmark as PetroChina is acquiring overseas stake directly (rather than via its state parent before), and we expect Sinopec Corp to follow suit," China Merchants Securities analyst Qiu Xiaofeng said, referring to the China's second-largest oil firm.
The acquisition will become a new platform to implement the company's international strategy and provide a broader foundation and stable path for development, PetroChina said.
The deal also comes after China unveiled a new fuel pricing mechanism in December which ensures refiners a profit by linking gasoline and diesel prices to global prices.
"The SPC deal gives PetroChina immediate access to increased refining capacities to take advantage of higher domestic prices down the road," Mirae Asset Securities analyst Gordon Kwan said. "On the flip side, if China fails to enforce the domestic refined product pricing reform, PetroChina can utilize SPC as an 'export' vehicle to sell fuel prices at international levels."
The total potential size of the deal is less than 7 percent of PetroChina's budgeted capital expenditure this year and there's little impact on earnings as SPC's profit of US$175 million represents less than 2 percent of PetroChina's expected earnings this year, Kwan said.
Still, Goldman Sachs said the deal is strategically questionable given Singapore's small domestic petroleum market, a bearish outlook for regional refining sector this year and next due to supply overhang, and SPC's old refinery has lower yield compared with PetroChina's.
PetroChina rose 1.87 percent to 13.10 yuan in Shanghai yesterday.
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