Sinopec unit sells stake to investors

25 firms buy 29.99% of company under mixed-ownership scheme

A group of 25 domestic and foreign companies has agreed to buy a combined 29.99 percent stake via a share increase in the sales business of China's top oil refiner Sinopec as the country pushes forward mixed-ownership reform in State-owned sectors.

This is the first major reform among China's SOEs after the Third Plenary Session of the 18th Communist Party of China Central Committee in November 2013 outlined a vision for a mixed-ownership economy featuring cross-shareholding of State and private capital.

Sinopec's scheme, which was launched on Sunday, marks the first concrete step after the company promised in February to trial mixed-ownership reform.

Sinopec said in a February statement that the board of directors had approved a proposal to restructure the company's distribution business and allow private capital to take no more than 30 percent of the shares.

The company said the investors of Sinopec Sales Co, a wholly owned subsidiary of Sinopec, come from a diversified background. Investors with an industry background account for about one-third of the total, whereas 45 percent of the investors have a foreign background. Eleven domestic investors are from the private sector.

Zhang Chunxiao, a professor at the Chinese Academy of Governance, said it is commendable that the whole process concerning the selection of investors has been transparent with timely disclosure.

"Sinopec has offered its valuable assets to invite investors from different backgrounds and companies of differing scales to co-develop and make the pie bigger. This is a perfect execution of the spirit of the Third Plenum," Zhang told the Global Times on Thursday.

"Sinopec Sales owns non-duplicable comprehensive competitiveness in brand, network, customer base and resources, and has a great potential for growth. The investors agree with this outlook and would like to deepen their involvement in the sales subsidiary's operation and management on a long-term and win-win basis," Sinopec said in an exchange filing on Monday.

Zhang said these companies are leaders in their own industries and Sinopec could use their expertise.

"Foreign investors are also included so this will create opportunities for interaction and leave room for future cooperation," Zhang noted.

Sinopec will diversify its board with directors from all backgrounds. The board will be composed of 11 directors, of whom four will be appointed by Sinopec, three will be elected among investors, three will be independent directors, and one will be an employee, Beijing Business Today newspaper reported Monday.

Liang Jun, a research fellow at Guangdong Academy of Social Sciences, said investors from the private sector will be fully protected.

"Despite its less than 30 percent stake, the private sector will have three directors to represent their interest in the board," Liang told the Global Times on Monday.

Besides, this is a spotlight reform project, and the decision-making process of the board will be closely followed by media and society, Liang said. "I bet that the private investors' voices will be given enough attention."

Leading Internet firm Tencent is among Sinopec Sales Co's partners, as it cooperated with an insurance and an asset company to purchase a stake in Sinopec Sales Co.

"Car owners have a rigid demand for gas, and Tencent aims to expand the market for its WeChat mobile payment. Sinopec benefits from Tencent's immense popularity based on its messaging app," Zhang Yi, CEO of Shenzhen-based market research firm iiMedia Research, told the Global Times Monday.

Other direct investors in Sinopec Sales Co include China Life Insurance Co, Qianhai Golden Bridge Fund, and Hong Kong-based ENN Energy China Investment

As of the end of 2013, Sinopec operated 30,532 oil stations. Retail sales of refined oil products amounted to 165 million tons on the Chinese mainland in 2013.

According to the company's annual report, its oil distribution business pocketed 35.1 billion yuan ($5.72 billion) in 2013.

The fact that Sinopec could offer its most prized asset to investors shows that it has the determination to carry out the central government's plan on mixed ownership, Liang noted.