Sinopec to buy rest of Zhenhai for $1b

Top Asian refiner Sinopec Corp is expected to pay up to $1.02 billion (Dh3.74 billion) to take private its majority-owned Sinopec Zhenhai Refining & Chemical Co Ltd, China's largest oil refinery, sources said yesterday.

Sinopec may buy the 28.68 per cent of Zhenhai it does not already own at HK$10.50-HK$11.00 a share, a premium of up to 16.4 per cent to its last traded price, said one source familiar with the situation and a fund manager who holds Zhenhai shares.

Beijing-controlled Sinopec, which took plastics maker Beijing Yanhua private earlier this year for $494 million, has been expected to buy out its other Hong Kong and China-listed units in a bid to streamline its structure and boost returns.

The buyout would follow rival PetroChina Co Ltd's announcement recently that it plans to take private three listed firms, including its Hong Kong and Shenzhen listed Jilin Chemical Industrial Co Ltd.

"This is perfect timing. With oil prices easing from earlier highs this year, they are seeing this could be the bottom of the cycle," said Alan Shum, fund manager at China Insurance International Holdings Co Ltd.

Chinese refiners and chemical producers are battling tight margins. Some are losing money because of surging crude costs and Beijing's cap on petroleum product prices, which prevents refiners from passing on higher costs to customers.

But shares in Zhenhai, which is 9.41 per cent-owned by UK oil giant BP Plc, reached their highest since March before trading was suspended yesterday, amid talk of the privatisation move and expectations for recovery in the sector.

The market is rife with speculation that Beijing will introduce measures soon to ease the burden on refiners.

"They will have to pay lot more to buy out Zhenhai if the refining market picks up later on," Shum said.

Sinopec owns 71.32 per cent of Zhenhai, which has a market capitalisation of $3.1 billion.

The company, China's number-two oil producer, confirmed it was in privatisation talks with Zhenhai. "We chose Zhenhai because it is easier to do so. It is listed in Hong Kong only and not in China," spokesman Chen Ge said by phone.

"We are delivering on our promise we made when we went public, that is, to buy out our listed units."

Sinopec, listed in 2000, was formed by a combination of state stakes in a dozen listed oil and petrochemical companies, leaving it with a disjointed corporate structure. In recent years, Sinopec sold stakes in Hubei Xinghua Co and Wuhan Phoenix Co.

Zhenhai, which produces gasoline, diesel and other petrochemical products, could not be reached for comment.