Sinopec Fuel Unit Sale Attracting ‘Tremendous’ Interest in China

Aug 28, 2014 2:46 am ET

Aug. 28 (Bloomberg) -- China Petroleum & Chemical Corp., Asia’s top refiner, has drawn interest from China Life Insurance Co. and ENN Energy Holdings Ltd. in its bid to raise about $16 billion by selling a third of its fuel-retailing unit.

China’s largest insurer said yesterday it would look at taking a stake in the business, Sinopec Sales Co., although its investment isn’t certain. A subsidiary of gas supplier ENN said it is in talks with China Petroleum, or Sinopec, having submitted an offer.

Sinopec has shortlisted 37 potential buyers for the retail business, China’s largest fuel station network, and is in talks to complete terms, the refiner’s Chairman Fu Chengyu said this week. The company is at the forefront of China’s push to restructure state-controlled companies and allow markets a bigger role in the allocation of resources.

“Sinopec is picking up tremendous amount of interest in the retail unit,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said yesterday. “Some great brands are lining up to participate and the reason is clear -- this is one of the best retail assets anyone can get in the Chinese market.”

High Possibility

The possibility of investing in Sinopec Sales is “relatively high,” China Life’s chief financial officer, Yang Zheng, told reporters in Beijing today. He said the company sees investment value at the mid to low end of Sinopec’s range on the worth of the asset, without giving details. At the same briefing, China Life’s chairman, Yang Mingsheng, said an investment could bring “long term, stable” growth prospects.

ENN’s bid is still being evaluated by Sinopec, chief financial officer Wang Dongzhi said by phone today.

Sinopec rose 0.4 percent to HK$7.91 as of 1:19 p.m. in Hong Kong, while China Life and ENN were both up 0.7 percent. The benchmark Hang Seng Index was little changed.

China Life and ENN are the first investors to announce their intention to take a stake in Sinopec Sales, which runs more than 30,000 fuel stations and 23,000 convenience stores in China.

“Gold Mine”

Beijing-based Sinopec is seeking to raise as much as 100 billion yuan ($16 billion) by selling about a third of its stake in the unit, people familiar with the matter said in July. Sinopec Sales made a profit of 25.1 billion yuan on revenue of 1.5 trillion yuan in 2013.

The unit is a “huge gold mine,” whose full potential “hasn’t been tapped,” Fu said in March.

China Life is in the midst of cutting its stock holdings and boosting alternative investments including property, infrastructure and trust products, the company said yesterday. It reduced its equity portfolio to 5.26 percent as of June 30 from 7.5 percent at the end of last year.

Separate to any financial investment, ENN said earlier in the week that it will boost cooperation with Sinopec’s fuel- station business. ENN operates about 60 liquefied natural gas dispensers for trucks and large vehicles within Sinopec’s retail network and plans to expand that nationwide.

Sinopec has also added Tencent Holdings Ltd., Asia’s biggest Internet company, to its roster of partners for the unit. Tencent will cooperate with Sinopec Sales in areas including mobile payments, media marketing, navigation and customer-loyalty programs.

China Taiping Insurance Holdings Co., e-commerce platform yhd.com, and Taiwan’s Ruentex Group, an operator of convenience stores, are Sinopec Sales’ other strategic partners.

--With assistance from Zhang Dingmin in Beijing.