Sinopec’s shares jump as it seeks business restructuring

The shares of China Petroleum & Chemical Corp. climbed as the company is looking for private investors for as much as 30% of its oil retail unit. The eventual deal is estimated to more than 20 billion dollars.

China Petroleum & Chemical Corp. made an official statement yesterday, saying that the plan to reorganize its business was approved by the companys board. Sinopec currently operates the nations largest network that consists of more than 30,000 fuel stations.

The companys oil retail unit, which markets and distributes petroleum products, posted operating profit for the first nine months of 2013 estimated to 26.74 billion yuan (4.4 billion dollars), which makes 34% of the total operating profit of China Petroleum & Chemical Corp. The exploration and production profit was estimated to 46.33 billion yuan, which amounts to 60% of the companys one.

This move by the company is considered to be the first step towards a government promise for encouraging more private investment in industries that are owned by the country. This was one of the key points included in the biggest package of reforms in more than two decades which the Chinese leaders brought to light in November, considering the fact that the countrys annual growth is forecast to be the slowest one in 24 years. Such a deal also coincides with the trend to shift focus on production instead of on energy infrastructure.

Somshankar Sinha, who is an oil and gas analyst working for Barclays, wrote in a research note that selling 30% could help the company earn more than 20 billion dollars.

Tony Hann, who currently heads the emerging-market equities of Blackfriars Asset Management Ltd, commented in a telephone interview for Bloomberg: “It’s viewed as value creative for Sinopec. It’s an indication authorities are going to deliver on their promise to make these state-owned enterprises more market-oriented.”

According to data, compiled by Bloomberg, China Petroleum & Chemical Corp.s retail unit was the biggest contributor to the companys 2012 sales. The company revealed in an e-mailed statement that it operated 30,532 fuel stations across China as of the end of 2013.

The regional head of oil and gas research of Nomura Holdings Inc. – Gordon Kwan said for Bloomberg that “retail business is a cash cow that could be appealing to private individuals who don’t have the appetite to take on capital-intensive upstream projects.” He also added: “By bringing in individuals that have more marketing experience in running a retail business, it could improve efficiency and encourage best practice. It’s a win-win situation. The retail business does not have a high margin compared with Sinopec’s upstream business.”

China Petroleum & Chemical Corp. rose as much as 10.4% today in Hong Kong, the most in five years, and settled 9.42% higher at HKD 6.62, marking a market value of $768 billion HKD.