First out­bound ac­qui­si­tion by teapot re­finer ‘a win-win’

China Daily (Hong Kong) - - BUSINESS - By ZHENG XIN in Bei­jing and ZHAO RUIXUE in Ji­nan

A Chi­nese com­pany’s ac­qui­si­tion of a con­trol­ling stake in Shell Re­fin­ing Co in Malaysia is a win-win for both the teapot re­finer and Shell, an an­a­lyst said.

Shan­dong Hengyuan Petro­chem­i­cal Group Co has agreed to in­vest $66 mil­lion for the ac­qui­si­tion of Shell Re­fin­ing in Malaysia and will con­tinue to pro­vide petroleum prod­ucts to Shell’s down­stream busi­nesses in the South­east Asian coun­try.

This is China’s first out­bound ac­qui­si­tion by teapot re­fin­ers, an in­dus­try term which refers to small re­fin­ers with a ca­pac­ity rang­ing from 20,000 bar­rels per day to 100,000 bpd.

“One man’s trash is another man’s trea­sure and Shell and Hengyuan play com­ple­men­tary roles for each other,” said Li Li, en­ergy re­search di­rec­tor at ICIS China.

Shell Re­fin­ing’s Port Dick­son has a ca­pac­ity of 156,000 bpd, twice that of Hengyuan, but it is run­ning at a heavy loss while con­fronted with a sub­stan­tial in­vest­ment needed for a fu­ture qual­ity up­grade.

Shell Malaysia was es­tab­lished in 1960 and suf­fered losses mostly due to the global crude price plunges, the an­a­lyst said.


On the other hand, the pur­chase could well en­able the Shan­dong-based re­finer — which has been able to run a re­fin­ery at a lower cost — to deal with its over­ca­pac­ity while mak­ing its first move with an over­seas ac­qui­si­tion, ac­cel­er­at­ing its global moves to cash in on busi­ness op­por­tu­ni­ties aris­ing from low crude prices, she said.

China’s pri­vate re­fin­ers need to be more in­ter­na­tion­al­ized if they want to grow stronger, the an­a­lyst added.

Wang Youde, chair­man of Hengyuan, said: “Many Chi­nese pri­vate re­fin­ers are ea­ger to gain over­seas re­sources, but they are not con­fi­dent due to lim­ited re­sources at home and abroad and dif­fi­culty in get­ting fi­nanc­ing from banks.”

“How­ever, com­pared with the State-owned en­ter­prises, we are more flex­i­ble in our mar­ket and ef­fi­cient in de­ci­sion-mak­ing.”

Ac­cord­ing to Wang, the ac­qui­si­tion en­ables Hengyuan to have an over­seas sales plat­form as Shell Re­fin­ing sees 90 per­cent of its oil prod­ucts con­sumed within Malaysia.

“For Malaysia, which sees sup­ply of re­fined oil prod­ucts fall­ing short of de­mand, Hengyuan could im­port its petroleum prod­ucts in the fu­ture once it got the re­fined oil ex­port qual­i­fi­ca­tions,” he said.

in­vest­ment by Hengyuan in ac­quir­ing a stake in Shell Re­fin­ing Co in Malaysia

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