PetroChina kicks off major Asian acquisition binge with SPC

25 May 2009 07:07  [Source: ICIS news]

By Dolly Wu and Judith Wang

SHANGHAI (ICIS news)--Petrochemical giant PetroChina has just jumpstarted its overseas acquisition binge in the region by proposing to take up a sizeable chunk of oil refiner Singapore Petroleum Corp (SPC), timing its strategy while the market is still weak, analysts said on Monday.

The Chinese state-owned oil and gas giant is prepared to spend a total of yuan (CNY)233bn ($34.2bn) this year to buy and upgrade assets according to its chairman Jiang Jiemin.

“PetroChina will likely continue to acquire overseas assets,” said Qiu Xiaofeng, a petrochemical analyst from Shanghai-based China Merchants Securities.

The company, along with its rival Sinopec, is expected to scour the markets for potential acquisition targets, analysts said.

Sinopec and PetroChina will speed and expand the acquisition on overseas assets in the following months,” said Li Guangzan, an analyst from Hangzhou-based Founder Securities.

PetroChina had announced on Sunday it would buy 45.51% of Singapore oil company SPC for about Singapore dollar (S$)1.47bn ($1.02bn) about two weeks after it secured its shareholders’ approval to sell as much as CNY100bn ($14.7bn) of bonds to fund exploration, pipeline and overseas projects.

“It is a good chance for us to purchase such potential industry company now at a favorable price. We believe that is a powerful measure to help us to develop markets in Asia,” said an official from China National Petroleum Corporation (CNPC), the parent company of PetroChina.

SPC would be PetroChina’s first major acquisition of a publicly-listed company in Asia.

PetroChina is engaged in trading of physical crude oil, refined oil products such as gasoline, gasoil, jet fuel, naphtha and fuel oil and petrochemicals, and has investments in a storage facility. The company’s main markets include Indonesia, Vietnam, Singapore, China and South Korea.

SPC is listed in the Singapore Exchange with interests in petroleum refining and oil and gas exploration and production, and holds a 50% stake in Singapore Refining Company Pte Ltd, which owns a 285,000 bbls/day refinery. It has assets in China, Indonesia, Vietnam, Cambodia and Australia.

The two companies have a good fit, analysts said.

“SPC gives PetroChina immediate access to further its oil/gas exploration footprint in Indonesia, Australia, Vietnam and Cambodia with little government red tape," said Gordon Kwan, head of energy research at Mirae Asset Securities

"Although SPC’s exposure to upstream is currently small, but because E&P is PetroChina’s core competence, the latter could potentially turn these projects into big wins via increased investments and advanced technologies,” he added.

PetroChina’s proposed acquisition of SPC still requires approvals from relevant authorities.

“Given the friendly relations between China and Singapore, we see both governments will approve the proposed buyout,” said Kwan.

But pursuing acquisitions at this point when petrochemical companies had just gone through two difficult quarters may not be so easy, said Qiu of China Merchants Securities.

Some companies could just be on the verge of turning around from losses suffered since the fourth quarter, aided by the gains in crude oil prices and may resist being taken over, he said.

"Target companies that are willing to sell is not easy to find," said Qiu added.

($1 = S$1.44 / $1 = CNY6.82)

Serene Cheong of ICIS Heren contributed to this article

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By: Dolly Wu
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