Sinopec to acquire group assets

China Petroleum & Chemical Corp, also known as Sinopec Corp, restated on Thursday its plans to acquire overseas oil and gas assets from its parent, China Petrochemical Corporsation or Sinopec Group, the country's largest refiner by capacity, at a proper time to avoid intra-group competition.

The move is expected to boost the returns of Hong Kong- and Shanghai-listed Sinopec Corp, which has been stymied by its downstream refining business which is running at a loss due to government control on fuel prices, analysts said.

Sinopec Corp will become the sole entity engaged in exploration and production of oil and gas, oil refining, chemicals, and sale of petroleum products after the integration of these upstream, midstream and downstream businesses under Sinopec Group, Sinopec Corp said in a statement published on its website yesterday.

The company did not specify the timetable for the acquisitions but said the parent would divest its minor remaining chemicals business within the next five year.

"The group is now applying for bond issuance so it needs to further disclose the arrangement for assets overlapping with its listed unit, Sinopec Corp, which has the pre-emptive right to buy these assets. Sinopec will buy them when the time is ripe, but also taking into consideration their profitability," Huang Wensheng, a spokesman for Sinopec Group, told the Global Times.

The output of overseas oil business, in which the group has a working interest, reached 27 million tons last year and is expected to top 50 million tons by the end of 2015, the group said in January.

"Given that Sinopec Corp uses almost half of its capital on refining which has been a drag on the company's profitability due to the government's control on crude prices, the move is expected to boost the company's output and reserves and thus its returns," said Dong Xiucheng, director of the China Petroleum Industry Development Research Center.

The group reported loss of 23 billion yuan ($3.63 billion) in its refining business in the first three quarters of 2011 and full-year loss was expected to reach 38 billion yuan, according to a research report by Xiangcai Securities.

Sinopec Group has been gradually diversifying away from its refining business by stepped-up acquisition of overseas assets.

It signed a $5.2 billion deal that will give it a 30 per cent stake in the Brazilian assets of Portuguese energy company Galp Energia last November.

"The acquisition costs of overseas assets are generally high, and involve multiple political risks. So there is also a large uncertainty about the future profitability of these assets," noted Chen Gang, an analyst with Xiangcai Securities.