Sinopec sells 22.8b yuan stake in natural gas pipeline unit

[SHANGHAI] China Petroleum & Chemical Corp is selling a 50 per cent stake in a pipeline unit to investors including China Life Insurance Co for 22.8 billion yuan (S$4.7 billion) as it seeks funds to expand its natural gas business.

China Life will pay 20 billion yuan for a 43.86 per cent stake in the pipeline, while a division of State Development & Investment Corp will get the remaining 6.14 per cent for 2.8 billion yuan, the state energy giant, known as Sinopec, said in a statement to the Hong Kong stock exchange Monday.

Sinopec, the world's biggest refiner and one of China's Big Three energy companies, will use the funds to expand the capacity of the unit, Sinopec Sichuan-to-East China Gas Pipeline Co, build gas-storage facilities and push forward its natural gas business, it said in the statement.

"There is a shortage of pipeline capacity and gas storage facilities in China, so the government is encouraging more investment in those sectors," Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd, said by phone.

"This is part of broader efforts by authorities to diversify investment into cash-intensive infrastructure projects."

President Xi Jinping's government is seeking to boost the use of natural gas in China's energy mix and revamp the country's massive state-owned enterprises. The country's gas demand may rise to as high as 350 billion cubic metres by 2020, according to the National Energy Administration, up from 193.2 billion last year.

Sinopec, along with China's biggest producer, PetroChina Co, have sold parts of their extensive pipeline assets since last year to raise capital, cut costs and meet government-set growth targets as lower oil prices have punished earnings.

Sinopec approved the plan to sell as much as half of the pipeline unit in August. The whole division was estimated to be valued at US$6 billion, an analyst at China International Capital Corp said at the time.

The Beijing-based company started operating the gas pipeline, which links eastern China to the Puguang gas field in Sichuan province, in 2010. It can transport as much as 12 billion cubic metres of the fuel annually. The 2,229 kilometre line, which transmitted 8.3 billion cubic metres of natural gas in 2015, links six provinces and two municipalities, including Shanghai.

The company invested 63 billion yuan to build the pipeline, according to the state-controlled People's Daily.

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