02/05/2017 15:30 AST
Sinopec, the world's second largest oil refiner, and Saudi Aramco, the world's largest crude oil producer, focus on different sections of the supply chain, but they share a common need to tap international capital markets as part of reform to enhance efficiency of state giants amid an uncertain outlook in the competitive oil industry.
Sinopec, formerly known as China Petroleum & Chemical, last Thursday said its board has approved a plan to separately list its fuel marketing unit, Sinopec Marketing, by selling around a 10 per cent stake to investors in an unspecified overseas stock market.
The deal "could help unlock hidden value" in the company, according to Sanford Bernstein senior analyst Neil Beveridge, who estimated two years ago the marketing unit to be worth 404 billion yuan (US$58.5 billion).
The listing exercise would see more of the firm sold to outside investors - a move aimed at improving its governance and helping it better tap new business opportunities - although Sinopec is expected to retain majority control. A 30 per cent interest was already been sold for 107 billion yuan to 25 investors in 2014.
Similarly, by listing and selling shares of Saudi Aramco, the Saudi government aims to unlock value in the state-owned crown jewel to bolster the Public Investment Fund of Saudi Arabia, so that the oil-dependent nation can diversify its future income - both industry wise and geographically.
An example of the diversification can be found in the fund's US$45 billion commitment last December to the high-tech investment vehicle set up by Japanese telecommunications and internet giant SoftBank.
Meanwhile, Sinopec said it would use the listing proceeds to develop its fuel and emerging non-fuel retail business, besides "optimising its asset-liabilities structure," which usually refers to a reduction in debt leverage.
The sale and public listing is part of Beijing's latest round of initiatives to further reform state-owned enterprises to make them more efficient and market-oriented.
It is widely expected to be followed by a stake sale and separate listing of rival PetroChina's natural gas distribution business, which management late March said has been undergoing restructuring, with further progress dependent on Beijing's plan.
PetroChina reports 2016 net profit tumbles 78 pc, says it's in talks with Saudi Aramco
Profits for Saudi Aramco and PetroChina - and to a lesser extent Sinopec thanks to its downstream business focus - have been dented by the three year-old oil price slump, as US technological advancement has cut production costs and allowed more "unconventional oil" to be pumped from shale rock formations, forcing non-US producers to cut back output from high-cost fields.
Sinopec's announcement last week came on the heels of regulator National Development and Reform Commission spokesman Yan Pengcheng's indication that the so-called "mixed ownership" reform - the mixing of state and private capital in a state company - is being prepared for the oil and gas sector. Sinopec and PetroChina are among the third batch of pilot cases for China's state enterprise reform.
In January the Saudi energy minister Khalid Al Falih told the World Economic Forum in Davos, Switzerland that Aramco's listing is part of the kingdom's wider reforms which aim for the private sector to account for 65 per cent of the economy by 2030, up from 40 per cent last year.
The listing would also help fund the nation's budget deficit that amounted to around 20 per cent of its economic output last year, and improve efficiency of the state-owned behemoth, Beveridge said.
South China Morning Post
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