Sinopec said on Sunday it has sold a 29.99% stake in its retail unit to 25 investors, including Fosun International and ENN Energy Holdings, for Rmb107.094 billion ($17.44 billion) in cash.
After completion of the capital injection, Sinopec will hold a 70.01% shareholding interest in the company. The new investors will have three board seats.
The sale of Sinopec's stake in its retail unit, which includes more than 30,000 petrol stations and 23,000 convenience stores, is part of China’s efforts to court private capital to make its sprawling state-owned enterprises (SOEs) more efficient.
The deal price is slightly below expectations; a Barclays research report in February estimated the stake’s value at more than $20 billion. As of April 30, Sinopec's retail arm had assets worth Rmb341.7 billion ($55 billion).
State-owned Sinopec first announced its intention to sell the stake in its unit, known as Sinopec Sales, in February. None of the investors will own more than a 2.8% stake.
The investors, which ultimately all are linked to China and are mostly financial firms, include affiliates of Bank of China, China Cinda Asset Management, private equity fund Hopu, Haier Electronics, ICBC Credit Suisse Asset Management, China Asset Management, Harvest Fund Management, private equity firm RRJ Capital, Fosun International, Sino Life Insurance, ENN Energy Holdings, China Pacific Insurance Group and China Life Insurance Company.
President Xi Jinping first unveiled his plan to court private investment at a Communist Party leadership gathering in November last year. Asset sales at centrally governed financial and industrial giants quickly followed. Beijing-based conglomerate Citic Group sold 16% of its capital to 27 institutional investors after injecting $36 billion of its assets into a Hong Kong-listed entity.
Bank of America Merrill Lynch, CICC, Citic Securities and Deutsche Bank are the financial advisors for Sinopec's sale.
This year has seen a major shift in focus at the top echelons of China's state-owned giants because hunger for big-ticket acquisitions appears to have cooled off.
China's big four – China National Offshore Oil Corporation (Cnooc), PetroChina, China Petroleum & Chemical Corp (Sinopec) and Sinochem – are looking to squeeze out efficiencies, improve governance and some are keen to embrace private capital.
“It has always been about going out to buy for the past decade but for the last 12 months I have seen a radical change," Yash Kaman, Deutsche Bank’s Hong Kong-based co-head of natural resources group for Asia, told FinanceAsia. "Chinese oil and gas companies are more focused on restructuring and integrating past acquisitions."
China's oil giants are courting private capital not just for funds but to improve the way they are run and for their general know-how. “The need for financing is driving big oil companies to seek private capital,” said Hansong Zhu, the Beijing-based co-head of natural resources at Goldman Sachs.
“But in addition to financing, another objective is for reform. Strategic investors can help establish a new management incentive plan and make oil companies more market oriented,” he said.
In addition to seeking private capital, Chinese oil companies are consolidating sprawling assets, putting related assets together and seeking listings for units. The government is encouraging Chinese companies to tap financing on a standalone basis, rather than depend on their parents for cheap financing and bankers see an opportunity to play a role.
Some Chinese oil and gas companies are expected to list.
China Petroleum Corp will list its petroleum engineering business in Hong Kong, according to a filing. Sinopec is also planning to list Sinopec Sales, according to two sources familiar with the matter. A third source familiar with the company added that Fu Chengyu, Sinopec's chairman, had already been steering the company towards greater corporate clarity by spinning off entities through listings, even before the new push from the government to reform SOEs.
Fu was also previously the head of Cnooc, which spun off various independent entities during his tenure, including China Oilfield Service and fertiliser unit China Blue Chemical in 2002 and 2006, respectively.
Sinopec last year spun off its engineering and construction arm, Sinopec Engineering, raising $1.8 billion.
Other potential deals include asset injections and sales. Previous acquisitions have tended to be undertaken by Sinopec's parent but under Fu's leadership the plan is to inject upstream assets held by the parent into the listed company Sinopec, according to the third source familiar with the company. That would be in line with the experiences of Cnooc, where offshore acquisitions have mostly been undertaken by Hong Kong-listed subsidiary Cnooc Ltd.
Meanwhile, Hong Kong-listed PetroChina said in May that it plans to establish a subsidiary called PetroChina Eastern Pipelines and sell a 100% interest through a public tender on an equity exchange. China Enterprise Appraisals valued the net assets of the pipelines at Rmb39 billion ($6.3 billion) and Fitch said in a May report that it expects the transfer proceeds to be higher than the net book value.
PetroChina last year formed a joint venture with Chinese investment company Taikang Asset and the Guolian Fund through which the two funds pumped in Rmb60 billion ($9 billion) in exchange for a 50% stake to develop pipeline assets in the western part of China.
Additional reporting by Denise Wee