Analysts Anticipate Sinopec IPO


Newly formed Sinopec Lubricant Co. has yet to set dates for its anticipated initial public stock offering, but observers expect the plan to be announced in coming months. They also contend that the event could have ramifications not only for Sinopec but also for the broader industry.

China Petroleum & Chemical Corp., also known as Sinopec, established the new finished lubricants subsidiary in July, and officials said then that part of the motivation was to attract external capital financing in order to accelerate the business development. The parent company also wanted to establish a structure more in line with international operations.

Industry observers are watching for further details.

Sinopec has been working on the preparation of a spin-off and separate listing since 2010, Gong Wei, an industrial analyst with Sublime China Information Group, told Lube Report Asia in a recent interview. We believe SLC [Sinopec Lubricant Co.] will definitely launch an IPO as an independent company, given the last example in May 2013, when another subsidiary, Sinopec Engineering Company raised U.S. $1.8 billion in an IPO in Hong Kong.

The spin-off came in the wake of Chinas landmark reform framework issued last year, which encourages state-owned enterprises to bring in private investors to improve returns and efficiency. The Chinese government is expected to release new policies on the energy sector at yearend, China Zero Power Intelligence analyst Liang Jiapei noted. By then, she predicted, launching the IPO would better reflect the companys investment value.

Although it looks inevitable that SLC will take on investors, its unknown how wide the door will be opened. Its not clear if we will accept foreign investment, but after an IPO we will operate as an independent company, Sinopecs base oil manager, Zeng Haiying, told Lube Report Asia.

Liang and Gong both predicted that SLC is likely to go public in Hong Kong due to Hong Kongs status as an international financial center, which can help SLCs international development.

The ability of the Asia market to attract capital is stronger than the United States, Liang said. The domestic stock market has turned upward recently, and the Hong Kong stock market also benefited from the rise.

Compared to other petrochemical products, the lubricant industry places more emphasis on brand building, said Gong, and funds from an IPO would help pay for that. The spin-off also makes it more convenient for changes such as a switch to asset accounting. Liang said that lubricant is one of the fastest growing sectors in Chinas energy industry, and that carving off its lube operations allowed Sinopec to reduce the parent companys operational risk.

For more than a decade Sinopec has been steadily giving more autonomy to its lubricant operations. In 2002 it created a lube division. In 2012 it reorganized the division, setting up five sales branches, 12 sales offices and five technology service centers in a bid to improve efficiency. As part of that change, Sinopec took back clients and distribution responsibilities from its provincial oil companies. Gong said all of those changes helped pave the way for an IPO.

If the stock offering succeeds, it will set a benchmark for the industry, Liang said, and encourage other energy companies to do likewise. This could strengthen domestic lube players and make them more cohesive, improving their competitiveness on the international stage, she explained.

The business has already had some success. SLC has the most complete lubricant product line and largest production scale among Asian lubricant companies, Liang said. It has seized one third of the high-end lubricant market share in China, and it offers products and services in more than 50 countries.

Liang predicted that internationalization and capitalization will ultimately allow SLC to achieve the strategic objective of building a world-class lubricant enterprise.

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