Chevron’s suitors in Patel’s sight
THE DEPARTMENT of Economic Development wants SOIHL Hong Kong Holdings to meet a host of public interest conditions as the Chinese group bids for Chevron South Africa’s 75 percent stake.
The public interest concerns are part of conditions that the Competition Commission has proposed for the deal to get the Competition Tribunal approval.
China Petroleum & Chemical Corporation (Sinopec), which owns Soihl and global commodities trader and miner Glencore are the front runners to buy the Chevron South Africa assets. With the backing of Chevron South Africa’s local shareholders, Glencore has the edge over Sinopec. The department’s stance gives Glencore, which is the likely buyer of the the assets, a glimpse of what is in store for them when they take the transaction to the competition authorities.
Until a few months ago, Sinopec looked set to clinch the deal. But in October, commodities trader and miner Glencore entered the scene and offered to buy the assets for $973 million (R12.05 billion).
This followed a decision Chevron’s local shareholders to exercise pre-emption rights following delays to the Sinopec deal. The minority shareholders, who include a consortium of black economic empowerment shareholders and an employee trust, hold a right of first refusal.
In a statement yesterday, Chevron South Africa said the Sinopec deal was subject to the right of first refusal by the minority shareholders, even if the Tribunal approved the transaction.
“If approval is received from the Competition Tribunal, Sinopec cannot yet conclude the transaction, as that transaction is subject to the right of first refusal held by the Minority Shareholders of CSA, and other conditions precedent,” Chevron South Africa said. The company said the proposed deal with Glencore was also proceeding before the Competition Commission. Chevron announced its decision to sell the South African assets two years ago.
Chevron South Africa’s assets include a 100 000 barrel-perday oil refinery in Cape Town, a lubricants plant in Durban as well as 820 petrol stations and other oil storage facilities. It also includes 220 convenience stores across South Africa and Botswana.
While the commission’s recommendation to the tribunal might turn out to be academic if the minority shareholders stick with Glencore, the Department of Economic Development has shown its intention to ensure that the deal addresses public interest concerns.
Minister of Economic Development Ebrahim Patel has previously stepped in mergers and acquisitions to address among others concerns about job losses, transformation and support for small businesses.
In a statement this week, the commission said: “Sinopec has agreed to make certain undertakings to ensure that the transaction generates public interest benefits for South Africa, while promoting the efficiency, adaptability and development of the economy.”
The company has also agreed to set up its head office in South Africa, to co-ordinate and oversee its midstream and downstream operations in South Africa “and to use South Africa as the platform to oversee operations in the rest of Africa”.
The commission said Sinopec had agreed that no employees would be retrenched as a result of the merger. The company also committed to invest in the Cape Town refinery.
“Sinopec will make a significant investment over and above the current investment plans of Chevron South Africa. Sinopec will also upgrade Chevron South Africa’s operations in line with the standards of its other refining operations as well as expanding the refinery capacity in South Africa over time,” the commission said.
This represents a major commitment from the Chinese company given the current stand-off between the government and the petroleum industry regarding investments in refineries necessary for the switch to cleaner fuels.
The commission said that Sinopec also undertook to maintain Chevron South Africa’s current baseline number of independently owned petrol stations. “Further, where independently owned petrol stations are to be established, Chevron South Africa will give preference to small businesses, especially black-owned businesses,” the commission said.
Sinopec also undertook that in establishing new retailer owned petrol stations, Chevron would favour small businesses in the grant to rights in respect of such petrol stations. “(Chevron South Africa) will also increase its level of supplies of (liquefied petroleum gas) to black-owned businesses, following the expiration of current contractual arrangements.
“In addition, Sinopec undertakes to promote the export and sale of South African manufactured products for sale in China, and in particular through the service station network operated by Sinopec in China.
“Sinopec has made further commitments regarding the re-branding of Caltex into Sinopec. With respect to the Branded Marketers (Caltex’s independent wholesalers and distributors of its petroleum products), Sinopec has undertaken to ensure that CSA will not change any of the existing contracts,” the commission said.
$973m The Glencore offer for the company in October