Sinopec’s marketing arm listing may prove hard sell in soft markets

FILE PHOTO: Man stands next to a logo of Sinopec at an expo on rubber technology in Shanghai
FILE PHOTO: A man stands next to a logo of Sinopec, or China Petroleum and Chemical Corporation, at an expo on rubber technology in Shanghai, China September 19, 2018. REUTERS/Stringer/File Photo

January 18, 2019

By Chen Aizhu and Julia Fioretti

SINGAPORE/HONG KONG (Reuters) – Sinopec Corp <0386.HK>, Asia’s top refiner, may have a hard time finding buyers for a multi-billion-dollar stock offering of its fuel marketing arm because of investor pushback against higher valuations amid tepid equity markets.

Sinopec won final regulatory approval in December for the listing of its marketing unit in Hong Kong, said two people with knowledge of the matter. The company runs the world’s largest retail fuel network with over 30,000 gas stations, 23,000 convenience stores, as well as pipelines and storage for refined fuel products across China, the world’s second-largest oil consumer after the United States.

But, Sinopec may have picked a bad time for an initial public offering (IPO) for a fuel marketing company amid investor fears of slowing economic growth in China, which posted a drop in exports and imports in December as its trade war with the United States drags on. Hong Kong’s Heng Seng Index <.HSI> has dropped 19 percent since it hit a record in January 2018.

More specifically, there are concerns about slowing Chinese oil demand growth and the potential oversupply of fuels in the country. In November, Sinochem Energy put its Hong Kong IPO on hold even after it lowered its valuation, reducing the amount of funds it expected raise to about $1.4 billion from $2 billion.

“It will be a hard sell for Sinopec,” said one of the two sources, a banking analyst who tracks Sinopec closely.

“The market has an average price/earning ratio of 8 or 9 times, but Sinopec is looking for more than 10 times,” said the analyst, referring to a common metric for valuing companies that measures how much an investor is paying for a portion of a company’s earnings.

Sinopec Corp declined to comment on its IPO plans.

The slowing market may mean a further delay for an IPO that has been under discussion since 2016. Sinopec attempted to raise $12 billion through a listing of the fuel marketing business in 2017.

In 2014, Sinopec sold a nearly 30 percent share of the business to investors for $17.5 billion, valuing the company then at about $58 billion, in the then largest privatization push of state-owned enterprises since President Xi Jinping took office.

This time, Sinopec will list the marketing arm through a separately incorporated entity, Sinopec Marketing Co. Ltd, which was set up just weeks after the National Development and Reform Commission and later the State Council approved the listing plan, said the second of the two sources familiar with the matter.

“Sinopec will try its best to list its marketing division in 2019, now that the top government body has given the go-ahead,” the source said, declining to be named as the subject was not public.

A separate banking source estimated that Sinopec’s IPO could happen in the fourth quarter as the firm has not started discussing the sale with banks yet and none have been mandated to work on the deal.

(Reporting by Chen Aizhu in SINGAPORE, Julia Fioretti in HONG KONG and Meng Meng in BEIJING; editing by Christian Schmollinger)

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