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Sinopec (SNP) Agrees to Divest 50% Stake in Pipeline Project
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China Petroleum and Chemical Corporation , also known as Sinopec, recently agreed to divest 50% of its stake in the Sichuan-East China gas pipeline project. The company expects to generate proceeds of about 22.8 billion yuan ($3.3 billion) from the deal.
Sinopec has farmed out 50% of its stake in the Sichuan-East China gas pipeline project to two state-owned companies – China Life Insurance and State Development and Investment Corp. While the former paid 20 billion yuan for a stake of 43.86%, the transportation unit of the latter shelled out 2.8 billion yuan for a stake of 6.14%.
Sinopec’s decision to sell the stake sale – four months after it announced plans to divest half its share of the pipeline – underlines its attempt to raise capital to fund its growing natural gas business. The move was also driven by the government's reform to enhance efficiency and boost infrastructure investment in cleaner fuels.
The proceeds from this transaction will be utilized for the construction of natural gas pipelines, including capacity expansion project and gas storage facilities for Sichuan-to-East China Gas Pipeline Project. The balance will be used for general working capital and to repay debts to improve the capital structure.
Following the capital injection, we wait to see how the market reacts to this news. Year to date, we note that Sinopec’s price chart has moved at a slower pace than the Zacks categorized Zacks sub industry Emerging Markets Integrated Market. Shares of Sinopec have gained 19.5%, whereas the broader market has increased by 63.4%. On completion of the capital injection, the registered capital of the Pipeline Company will increase to 200 million yuan from 100 million yuan. A wholly owned subsidiary of Sinopec – The Natural Gas Company – will hold 50% equity interest in the Pipeline Company, while China Life and SDIC Communications will collectively hold 50% equity interest in the entity. The Pipeline Company will no longer be merged into the consolidated financial statements of Sinopec.
Construction of the Sichuan-to- East China Gas Pipeline Project began in late Aug 2007. The pipeline has been designed to have a transportation capacity of 12 billion cubic meters per year. The project achieved all-line connection and began operation in 2009. The pipeline is 2,229 kilometers long and includes one trunk line, one special line and five branch lines. It spans across six provinces and two directly administered municipalities, namely Sichuan, Chongqing, Hubei, Jiangxi, Anhui, Jiangsu, Zhejiang and Shanghai.
SunCoke Energy posted a positive earnings surprise of 177.78% in the last reported quarter. It reported a positive earnings surprise in three of the four preceding quarters.
Suncor Energy posted a positive earnings surprise of 300.00% in the preceding quarter. It reported an average earnings surprise of 40.55% for the four preceding quarters.
Futurefuel Corp. posted a positive earnings surprise of 20.83% in the last reported quarter. It reported a positive earnings surprise in all of the four preceding quarters.
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Sinopec (SNP) Agrees to Divest 50% Stake in Pipeline Project
China Petroleum and Chemical Corporation , also known as Sinopec, recently agreed to divest 50% of its stake in the Sichuan-East China gas pipeline project. The company expects to generate proceeds of about 22.8 billion yuan ($3.3 billion) from the deal.
Sinopec has farmed out 50% of its stake in the Sichuan-East China gas pipeline project to two state-owned companies – China Life Insurance and State Development and Investment Corp. While the former paid 20 billion yuan for a stake of 43.86%, the transportation unit of the latter shelled out 2.8 billion yuan for a stake of 6.14%.
Sinopec’s decision to sell the stake sale – four months after it announced plans to divest half its share of the pipeline – underlines its attempt to raise capital to fund its growing natural gas business. The move was also driven by the government's reform to enhance efficiency and boost infrastructure investment in cleaner fuels.
The proceeds from this transaction will be utilized for the construction of natural gas pipelines, including capacity expansion project and gas storage facilities for Sichuan-to-East China Gas Pipeline Project. The balance will be used for general working capital and to repay debts to improve the capital structure.
Following the capital injection, we wait to see how the market reacts to this news. Year to date, we note that Sinopec’s price chart has moved at a slower pace than the Zacks categorized Zacks sub industry Emerging Markets Integrated Market. Shares of Sinopec have gained 19.5%, whereas the broader market has increased by 63.4%.
On completion of the capital injection, the registered capital of the Pipeline Company will increase to 200 million yuan from 100 million yuan. A wholly owned subsidiary of Sinopec – The Natural Gas Company – will hold 50% equity interest in the Pipeline Company, while China Life and SDIC Communications will collectively hold 50% equity interest in the entity. The Pipeline Company will no longer be merged into the consolidated financial statements of Sinopec.
Construction of the Sichuan-to- East China Gas Pipeline Project began in late Aug 2007. The pipeline has been designed to have a transportation capacity of 12 billion cubic meters per year. The project achieved all-line connection and began operation in 2009. The pipeline is 2,229 kilometers long and includes one trunk line, one special line and five branch lines. It spans across six provinces and two directly administered municipalities, namely Sichuan, Chongqing, Hubei, Jiangxi, Anhui, Jiangsu, Zhejiang and Shanghai.
Sinopec currently has a Zacks Rank #3 (Hold). Some better-ranked players from the same sector are SunCoke Energy Inc. (SXC - Free Report) , Suncor Energy, Inc. (SU - Free Report) and Futurefuel Corp. (FF - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SunCoke Energy posted a positive earnings surprise of 177.78% in the last reported quarter. It reported a positive earnings surprise in three of the four preceding quarters.
Suncor Energy posted a positive earnings surprise of 300.00% in the preceding quarter. It reported an average earnings surprise of 40.55% for the four preceding quarters.
Futurefuel Corp. posted a positive earnings surprise of 20.83% in the last reported quarter. It reported a positive earnings surprise in all of the four preceding quarters.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>