Thursday, February 09, 2006

Loaded With Cash, Sinopec Starts Buying

Our new partner in Block 2, the Chinese oil giant Sinopec, is apparently going on a buying spree that is starting with its own subsidiaries. We're not sure why companies buy their own subsidiaries, but the company has loads of cash from an estimated $75 billion in revenues last year that produced a $4 billion profit.

Many ERHC Energy investors opine that ERHC Energy is not a buyout or buy-in candidate, or either, because before PSCs are signed its rights are not perfected. Once they are signed, these wags says, the price will be much more justified by potential revenues, and at that time Sir Emeka Offor may consider a buyout.

A major oil company reportedly offered ERHC $2 per share last April, but nothing came of that offer.

Here is the latest on Sinopec's spending spree from the China Daily, where it made Page 5:

Sinopec 'buys out subsidiaries'
By Wang Ying (China Daily)
Updated: 2006-02-09 05:37

Sinopec Corp, the country's biggest oil refiner, plans to spend about US$1.46 billion to buy out four domestic-listed subsidiaries, said people close to the deal yesterday, fuelling expectations of further privatization.

Shares in the four Sinopec Qilu Petrochemical Co, Sinopec Zhongyuan Petroleum Co, Sinopec Shengli Oil Field Dynamic Group Co, and Sinopec Yangzi Petrochemical Co were suspended from trading, pending "important" announcements.

Sinopec Corp will take private the four units which are listed on the mainland, sources said.

"The trading suspensions mean we want to buy back the four subsidiaries and we will make a formal announcement specifying the deal in a few days," said a Sinopec executive who declined to be named.

Sinopec, listed in 2000, has been trying to simplify its corporate structure by making some of its subsidiaries private and cutting down on managers.

It took plastics maker Beijing Yanhua private earlier last year, and announced plans in November to privatize Sinopec Zhenhai Refining & Chemical Co Ltd.

A senior analyst with a securities company who is close to Sinopec's buy-back plans spoke on the condition of anonymity, saying the market value of shares in the four subsidiaries that Sinopec does not own controlling stakes in could reach 11.8 billion yuan (US$1.46 billion).

Sinopec has not decided whether the offers will be in cash or a mix of cash and shares, the analyst said.

The money spent would not have a major impact on the Shanghai- and Hong Kong-listed Sinopec, as the Beijing-based oil refiner has "sufficient" cashflow to support the buy-outs, said Liu Gu, a senior analyst with Guotai Jun'an Securities (Hong Kong) Ltd.

In December the company received 10 billion yuan (US$1.2 billion) from the Chinese Government in a one-off subsidy payment to offset losses incurred in its refining business.

"Besides, this State-owned flagship company has easy access to bank loans," the unnamed analyst said.

Shares of Sinopec, also the country's second-biggest oil producer, rose by 1.57 per cent to 5.18 yuan (64.9 US cents) yesterday on the Shanghai Stock Exchange.

Its Hong Kong stock slid 2.1 per cent to HK$4.65 (59.6 US cents) yesterday.

The company still has five subsidiaries publicly traded on the mainland and Hong Kong stock exchanges.

Shares in two of the five listed Sinopec subsidiaries, Shanghai Petrochemical Co and Yizheng Chemical Fibre Co rose by 6.01 per cent and 4.86 per cent respectively on hopes Sinopec would buy out more units.

"The total market value of shares in the five units that Sinopec does not own controlling stakes in could reach as much as 16 billion yuan (US$1.97 billion)," said the unnamed analyst.

But it is hard to predict when Sinopec will start privatizing the package of listed units, Liu said. "That will depend on the market and Sinopec's performance," she added.

In another Sinopec-related deal yesterday, the State-owned refiner signed a long-term partnership agreement with container shipping firm China Ocean Shipping (Group) Company (COSCO).

(China Daily 02/09/2006 page5)

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