PetroChina, the nation's biggest oil producer, is to buy back all the public shares of its three listed subsidiaries based in northeastern China for 6.15 billion yuan (US$758 million). Analysts say the move is aimed at improving standards and paves the way for an integrated listing on the Chinese A-share market.

According to announcements by the three units, PetroChina will spend 637.5 million yuan (US$78.6 million) on the purchase of Jinzhou Petrochemical and 1.76 billion yuan (US$217 million) on Liaohe Oilfield, both of which are listed on the Shenzhen Stock Exchange.

And to acquire Jilin Chemical, which is traded on the Shenzhen, Hong Kong and New York stock exchanges, PetroChina will have to pay 1.05 billion yuan (US$129.5 million) for domestically-listed shares and HK$2.701 billion on public shares quoted in Hong Kong and New York.

PetroChina said in a statement the acquisitions aim to privatize the publically-listed firms in order to avoid horizontal competition, and to further streamline connected transactions on the market.

PetroChina is committed to streamlining its corporate structure and this is the first step in achieving this important objective.

The move will further enhance the group's corporate transparency and improve corporate efficiency, and reduce the number of connected transactions, it said.

Industry analysts said the ultimate goal is to approach international standards as a vertically-operated oil and gas company, further co-ordinate domestic resources with its three listed subsidiaries, and finally achieve its plan to list on the Chinese domestic stock market.

Bi Jianguo, spokesman for PetroChina, yesterday declined further comment on the buy-back scheme and the firm's A-share listing plan.

Liu Gu, a senior analyst with Shenzhen-based Guotai Jun'an Securities (Hong Kong) Ltd, said PetroChina has chosen the right time to privatize its three units.

"Soaring world crude prices have given PetroChina, the country's largest oil and gas producer, a strong financial profile for its buyout acquisitions," she said.

The Beijing-based and Hong Kong-listed oil giant reported 61.6 billion (US$7.6 billion) in net profit in the first six months of this year, an increase of 36.1 percent year-on-year.

So even though PetroChina's parent company has just completed a US$4.18 billion takeover of Canadian-registered PetroKazakhstan last Thursday, analysts said, buying the three subsidiaries would not burden PetroChina.

In the long run, the deal will mean more returns for both PetroChina and the newly-bought petrochemical units, they said.

"This is a move with win-win prospects for both sides," Liu told China Daily yesterday.

Liaohe Oilfield, Jinzhou Petrochemical and Jilin Chemical belong to the upstream exploitation, middle-stream refining and down-stream chemical sections of the oil business. The integration of the three companies will help enhance their strength to reduce market risks, especially at a time when crude prices keep rising while the Chinese Government still holds a cap on the prices of domestically-refined oil products, Huang Meilong, analyst with Shanghai-based Shenyin Wanguo Securities, said.

For PetroChina, Liu said, the move will increase its business portfolio, and help it reach its long-term objective of becoming an internationally-operated oil company.

(China Daily November 2, 2005)