Sinochem, PetroChina in talks over refinery stake transfer

BEIJING: Chinese state-run oil and chemicals group Sinochem is in advanced talks to transfer its 33.6 per cent stake in a debtladen refinery to state giant PetroChina, part of Sinochem’s plan to shed non-core assets ahead of a US$2 billion (RM8.2 billion) listing of its energy arm, said sources.

The move is in line with a transformational strategy pushed by Sinochem chairman Ning Gaoning to zero in on core assets as it finalises a merger with ChemChina that will create the world’s biggest industrial chemicals firm, worth around US$120 billion.

It wasn’t yet clear what the valuation of the stake in the export-focused 200,000 barrels-per-day (bpd) West Pacific Petrochemical Corp (WEPEC) refinery would be, said the people.

Two sources, who have knowledge of WEPEC’s finances, estimated the refinery’s debt exceeded assets of around 10 billion yuan (RM5.93 billion) by nearly 50 per cent at end of last year due to deep losses in 2008 and 2014, even after refining margins improved over the past few years.

PetroChina has a stake of about 28 per cent in WEPEC.

Though advanced, talks on a deal might still take months to reach a conclusion, they said.

Majority control of WEPEC could help Petro-China consolidate its dominance in the northeast China fuel market and pave the way for future plant upgrades.

“Sinochem has two main reasons to leave (WEPEC). The plant’s poor balance sheet is not going to help Sino-chem’s (energy unit) IPO,” said one person. “Despite being its single-largest shareholder in the refinery, Sinochem also does not have a domestic offtake deal to manage its share of fuel production, leaving it primarily as a financial investor.”

PetroChina manages and operates WEPEC, based in northeastern port city Dalian. As well as Sinochem, other stakeholders include France’s Total, with 22.4 per cent, and local firms backed by the Dalian government.

The plant’s (West Pacific Petrochemical Corp) poor balance sheet is not going to help Sinochem’s (energy unit) initial public offering.