State-controlled oil giant Sinopec Corp. has unveiled a plan to sell a $17.5 billion stake in its retail business, marking China’s biggest privatisation push since President Xi Jinping came to power almost two years ago.
The sale is a reflection of the government’s drive to restructure the country’s many sprawling state-owned enterprises. PetroChina, the nation’s No.1 energy producer, has divested part of its pipeline business, raising billions of dollars from domestic institutional investors.
The sale also highlights Sinopec’s hope that outside investors would be a catalyst for growth and reform at its currently low-margin retail unit. But some analysts say a lack of retail names on the investor list is lowering their expectations of a quick turnaround. The presence of private equity firms also presents a risk in which they may exit the business when Sinopec lists the subsidiary in a couple of years.
Sinopec’s retail unit will issue new shares to a group of 25 largely deep-pocketed financial companies like insurers and funds and raise 107.1 billion yuan ($17.5 billion), the company said in a filing with the Hong Kong and Shanghai bourses.
The investors will get a combined 29.99 per cent stake in the unit, which comprises a wholesale business, more than 30,000 petrol stations, over 23,000 convenience stores, as well as oil-product pipelines and storage facilities. Each investor would not hold a stake exceeding 2.8 per cent.
Sinopec is looking for expertise and ideas to boost its non-fuel businesses which include convenience stores and services such as fast food and car washes
Besides capital, the investors are expected to bring in “strength and vitality” that will help reform and grow the retail unit, Sinopec Chairman Fu Chengyu said in a statement.
Sinopec will use the $17.5 billion from the sale to optimise its fuel retail business, boost non-fuel sales and pay down debts owed to parent company, Chai Zhiming, deputy chief executive of the retail unit, told Reuters in a telephone interview yesterday.
Sinopec is looking for expertise and ideas to boost its non-fuel businesses which include convenience stores and services such as fast food and car washes. Unlike the West, where non-fuel revenue can account for more than half of a filling station’s profits, over 99 per cent of Sinopec’s retail sales come from petrol.
“Definitely this is an area that has room for growth,” James Roy, associate principal of Shanghai-based business consultancy China Market Research Group, said of Sinopec’s non-fuel business.
Leading investors on the deal include one of China’s biggest asset managers Harvest Fund Management Co Ltd, which will pay 15 billion yuan for a joint stake with its subsidiary Harvest Capital Management. China Life Insurance and a consortium including People’s Insurance Group of China Co. Ltd and Tencent Holdings Ltd are each taking 10 billion yuan stakes.
Other investors include Fosun International, China gas supplier ENN Energy Holdings Ltd and white goods maker Haier Electronics Group Co. Ltd.
Asia private equity firm RRJ Capital, founded by former Goldman Sachs and Hopu Investment Management dealmaker Richard Ong, is among the foreign investors in the deal with a 3.6 billion yuan stake.
Sinopec has signed agreements with multiple Chinese firms this year to expand the spectrum of services offered by its petrol stations. The companies include Tencent Holdings, delivery service firm S.F. Express, retailer Ruentex Group, e-commerce firm YHD.com and Taiping Insurance Group.
Sinopec’s retail unit is aiming for “fairly high” growth in its non-fuel business in the coming years, Chai said. The unit will deploy capital to refurbish convenience stores, set up joint ventures with its partners, boost its car wash and other automobile-related services, and build up its network of natural gas refuelling stations, he added.