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Mixed opinions on Sinopec’s 30% divestment plan
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Sinopec Corp’s plan to open its fuel-marketing arm to the private sector could establish a precedent as China pushes the state-owned sector to create a more mixed-ownership economy.
The state-controlled refiner said last week that it plans to offer up to 30 percent of its marketing operation, which runs more than 30,000 gas stations, and some of its pipelines and storage tanks to “social and private capital investment.”
The decision followed a key Communist Party plenum in November that called for the private sector to play a bigger role in the economy.
Sinopec’s decision is also in line with the government’s plan for increased private investment in the oil and gas sector, a strategy formally endorsed by President Xi Jinping.
Still, analysts said they believe the moves won’t lead to increased competition in the market any time soon. Some speculated that the move involves a hidden agenda.
“Sinopec’s move is a solid reflection of the central authorities’ determination,” Xinhua news agency said, quoting Zhang Chunxiao, an expert with the State-owned Assets Supervision and Administration Commission.
The commission manages China’s 100-plus companies that are centrally administrated, including the parent company of Shanghai and Hong Kong-listed Sinopec.
State-owned enterprises have long been criticized for low efficiency, poor financial performance and high employee welfare costs. They enjoy the benefits of massive resources and government support, which stand in sharp contrast with the situation in the private sector.
The strictly regulated oil industry, from upstream to downstream, is dominated by Sinopec and PetroChina Co. The pair are frequently criticized, with their monopoly status in China bearing the brunt of blame whenever fuel price hikes or supply shortages occur.
By opening investment in its core downstream business, Sinopec is demonstrating “great sincerity” to outside investors in this restructuring effort, China International Capital Corp analyst Guan Bin said.
The marketing operation, though not as lucrative as the upstream sector, has been a cash cow for Sinopec, especially after China eased controls on fuel pricing.
Many analysts and investors applauded Sinopec’s divestment plan, which has boosted hopes that the government will loosen its grip on the oil industry and more reforms will be forthcoming among state-owned enterprises.
Sinopec shares surged 9.42 percent in Hong Kong and 10 percent in Shanghai on Thursday following the announcement.
However, some analysts said they believe optimism is misplaced and the divestment plan is nothing more than a ploy to raise money.
“The market interpreted this as SOE reform,” Laban Yu at Hong Kong-based brokerage Jefferies said in a note. “To us, it appears more like stealth capital-raising.”
Yu added that Sinopec will probably just use the proceeds to buy assets from its parent.
Sinopec didn’t give a timetable, asset value or other selling parameters for the proposed divestment. A spokesman said only that the plan heeds the call of China’s leadership for a more mixed-ownership economy and the company is still working on the details.
JPMorgan analysts said the proposed sale opens the possibility for a revaluation of Sinopec’s pump stations, half of which sit on Sinopec-owned property whose value has risen with land prices in the past decade.
Simon Powell, CLSA’s head of Asia oil and gas research agrees with that view.
“We spoke briefly with management ... and they highlight that the company’s 30,000 fuel stations are severely undervalued by the market,” he wrote in a note. “That’s why they proposed this deal.”
Analysts at Sanford C. Bernstein and Barclays both estimate that a 30 percent stake sold under the new plan could fetch above US$20 billion.
Bernstein’s Neil Beveridge said he expects cash from the divestment to be used to build a bigger and better upstream business.
Sinopec Chairman Fu Chengyu has made it clear he wants the company to focus from refining to one integrated with an asset mix similar to that of Royal Dutch/Shell or Exxon Mobil Corp.
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