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Sinopec wins cabinet approval for IPO of retail unit
[HONG KONG] Sinopec, China's top oil refiner, won approval from the country's cabinet for a long-awaited initial public offering of the retail unit that runs its vast chain of gas stations and convenience stores, people with knowledge of the matter said.
The green light from the State Council clears the final Chinese regulatory hurdle for the deal and means the IPO arrangers can move forward with detailed work on the listing, according to the people. Sinopec aims to sell shares of the business in Hong Kong this year, though it hasn't set a definitive timetable for when preparations will start, the people said, asking not to be identified because the information is private.
The unit, known as Sinopec Marketing Co., may seek to raise about US$5 billion to US$6 billion in the offering, the people said. The target has been reduced, from the US$10 billion originally mooted in 2016, due to the company's weakening growth prospects and concerns about market appetite for such a large issuance, according to the people.
Sinopec shares climbed as much as 2.2 per cent to HKUS$6.17 on Tuesday, up for an eighth day in nine. The stock has rebounded 13 per cent since hitting a two-year low last month.
Sinopec's retail operations include more than 30,600 fuel stations and nearly 27,000 convenience stores, according to its third-quarter report. The oil giant first proposed a listing in 2014, when it sold a stake in the unit to a group of investors including China Life Insurance Co. and billionaire Guo Guangchang's Fosun International Ltd.
"The opportunity for investors in the IPO is the growth of non-fuel retail which is growing at 25 per cent," said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. "Non-fuel retail is under-penetrated in China. In most major markets, non-fuel retail makes up more than 50 per cent of operating profit. For Sinopec, non-fuel retail makes up less than 10 per cent."
Any deal would add to the US$35 billion of first-time share sales in Hong Kong over the last 12 months, according to data compiled by Bloomberg. Plans for the potential IPO are still at an early stage, and details including size could change, the people said.
The company would still need to seek listing approval from the Hong Kong stock exchange before the transaction goes ahead. A representative for Sinopec, whose formal name is China Petroleum & Chemical Corp., said he couldn't immediately comment. The Chinese securities regulator didn't immediately respond to faxed queries.
Sinopec has seen growth in its fuel sales slow in recent years, even as it boosted contributions from non-fuel items like bottled drinks, snacks and cigarettes. Domestic retail sales of refined oil products increased 0.2 per cent in the nine months through September to 90.82 million metric tons. Operating revenue of the division's non-fuel business rose 13 per cent to 24.25 billion yuan, according to Sinopec's third-quarter report.
While one of the key selling points of the IPO is the fast growth of the non-fuel business, sales have been decelerating, according to Citigroup Inc. Valuation of the unit may not be as high given weak market sentiment and rising competition from domestic and foreign operators, analyst Toby Shek said in a note.
Plans to list Sinopec Marketing have been seen moving in sync with Beijing's efforts to merge the pipeline networks of its three major state-owned oil and gas companies into a single national infrastructure operator. The long-awaited reform, expected in the first half of this year, has overlapped with the retail unit's listing as some Sinopec Marketing assets might first be shifted to the new pipeline company.
Last month, Sinopec came under scrutiny for losses on oil derivatives at its main trading unit, Unipec. The company, which hasn't disclosed the size of Unipec's losses, has said the losses were related to the unit's hedging transactions, unearthed during regular supervision and that independent auditors are looking into the issue.