China Petroleum & Chemical Corp., Asia’s biggest refiner, plans to sell shares worth HK$24 billion ($3.1 billion) as it looks to add production assets.
The company plans to sell 2.85 billion Hong Kong-traded shares at HK$8.45 each., 9.5 percent less than Monday’s close, according to a filing after the market closed Monday. The company’s U.S.-traded securities plunged 7.2 percent Monday, the sharpest drop in almost a year.
Sinopec, as China Petroleum is known, plans to use the money for “general corporate purposes,” it said in the statement, without giving more details. Its parent company is in talks to buy more than $1 billion of African assets from Afren Plc, people familiar with the matter said this week after the group paid $2.5 billion for a 20 percent stake in an offshore Nigerian field owned by Total SA in November.
“The market may well be a bit disconcerted by it,” Colin Smith, head of energy research at VTB Capital in London, said Tuesday in a telephone interview. Investors may take the sale as a sign of financial stress since it isn’t tied to a specific acquisition, he said.
Sinopec may buy $8 billion worth of assets outside of China from its state-owned parent, the Wall Street Journal reported last month. Before Tuesday, the Beijing-based company rose 6.4 percent this year in Hong Kong trading, compared with a 4.5 percent gain in the city’s benchmark Hang Seng Index. The stock fell 0.3 percent to close at HK$9.34 in Hong Kong trading Monday.
“The company will be able to enrich its shareholder base by attracting a number of high caliber investors to participate in the placing,” Sinopec said in the filing. The company didn’t identify any of the investors.
Sinopec has struggled under a heavy debt load and Chinese price controls that have damped profitability from processing fuel. Those factors have forced the Beijing-based company to look for oil producing assets that can offset refining losses, said Erica Downs, a fellow at the John L. Thornton China Center at the Brookings Institution, a U.S.-based research group, in Washington.
“Sinopec has been hurt the most by these price controls and they see upstream assets as necessary to offset any losses in the downstream,” she said in a phone interview Monday.
Sinopec’s parent China Petrochemical Corp., which is owned by the Chinese government, has traditionally been more acquisitive overseas than its publicly traded unit, Downs said.
As the publicly traded Sinopec seeks additional investors, buying assets from the parent company may be the most attractive way to seek income streams to offset refining losses, she said.
“There are probably reduced risks to buying from your parent company to venturing overseas,” she said. “It would be a way to build your portfolio very quickly.”
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