China Petroleum & Chemical Corp (Sinopec), Asia's largest oil refiner, will swap petrochemical assets of one of its Shenzhen-listed subsidiaries with two power companies.

The deal is a fresh move for Sinopec to consolidate a dozen of its listed arms to avoid their competing with the parent company.

On late Tuesday, Sinopec announced that it will sell its 40.72 percent stake in Sinopec Wuhan Phoenix Co to Hubei Qingjiang Water Power Investment Ltd and China Guodian (Group) for 621 million yuan (US$75.1 million). The net asset value of the shares is 506.9 million yuan (US$61.3 million), Sinopec said.

Meanwhile, Sinopec will buy petrochemical assets from Qingjiang Investment and Guodian Group - including production facilities, inventories and corresponding accounts receivables - for 548 million yuan (US$66.3 million) in cash.

Sinopec is expected to profit by 73 million yuan (US$8.8 million) through the transaction which is pending approval by the State Assets Supervision and Administration Commission.

Phoenix, which produces and markets petrochemicals such as polypropylene and liquefied petroleum gas, has achieved only meager profit in the past few years.

Analysts said pricing of the deal was reasonable for Sinopec. But the deal is too small to be significant for the bottom line of Sinopec.

They said the move is a continuation by Sinopec of the consolidation of listed subsidiaries as its commitment to investors when it was listed in Hong Kong, New York and London in 2000.

Sinopec has 11 subsidiaries listed on domestic stock markets, and four H-share companies in Hong Kong: Sinopec Shanghai Petrochem, Sinopec Zhenghai Refinery and Chemical, Sinopec Kantons and Beijing Yanhua Petro. These companies floated on the market before Sinopec was incorporated during an industry reshuffle in 1998.

Sinopec started the consolidation by selling 162.2 million shares in Sinopec Hubei Xinghua to the State Development and Investment Corp for 539 million yuan (US$65.2 million) last year.

Liu Gu, an analyst with Guotai Jun'an Securities (Hong Kong) Co Ltd, said Sinopec's acquisition and consolidation of its subsidiaries will help the company improve its value chain and competitiveness.

But Liu said it is difficult for Sinopec to consolidate its Hong Kong listed subsidiaries which have good performance and are more complicated in capital structure. Sinopec may gradually raise its holding in the H-share companies before the consolidation moves on, Liu said.

(China Daily July 8, 2004)