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China: BP unloads Sinopec stake

AFTER disappointing the markets with flat fourth-quarter results, BP made a healthy profit from the mid-February sale of its 2.1% stake in China Petroleum and Chemical Corporation (Sinopec). It more or less doubled its money from the equity stake it acquired in October 2000, after 20% of the state-controlled, integrated oil firm was floated on overseas markets.

BP placed around 1.8bn H shares at a price of HK$3.5 ($0.45) a share, raising a total of about HK$5.8bn ($0.742bn). The company paid about $385m for the shares, less than four years ago, generating a profit of around $355m.

The move—which follows the disposal of BP's entire stake in China's biggest oil firm, PetroChina, in January—has fuelled speculation that other oil majors could dump their holdings.

ExxonMobil and Shell both hold similar sized equity interests in Sinopec.

The timing was right for BP, however, which cashed in on buoyant stock prices and was keen to offload non-core assets. At the time of the sell-off, Sinopec's shares were at an all-time high, although since then, Chinese oil stocks have sagged, amid fears other investors could follow suit. The PetroChina sale raised a further $1.65bn for BP—another substantial return on its initial outlay in early 2000.

Gary Dirks, president of BP China, says it was an 'appropriate time' to divest. The acquisition was a strategic move to support the entry of the Chinese firms to the equity markets and to build relationships that would help BP to establish its business in China. 'The decision to sell our stake in Sinopec is entirely separate from our joint business activities with the company, to which we remain committed,' he adds.

BP is already one of the largest foreign investors in China. It has a 30% stake in the country's first liquefied natural gas import terminal—under construction near Shenzhen, Guangdong—and operates retail ventures with both Sinopec and PetroChina. The company expects to invest a further $3bn in the country over the next five years.

Sinopec has hinted that the firm has been told by both ExxonMobil and Shell that neither has plans to offload their stakes. Like BP, both companies are pursuing big-ticket Chinese projects. Shell is working with China National Offshore Oil Corporation on the $4.3bn Nanhai petrochemicals plant and with Sinopec in the retail sector, while ExxonMobil and Shell are seeking stakes in the West-East gas pipeline project, led by PetroChina.

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