Sinopec to Buy Chevron's South Africa Assets for $900 Million -Update
March 22 2017 - 9:16AM
Dow Jones News
By Brian Spegele
BEIJING -- China Petroleum & Chemical Corp. said it would
acquire controlling stakes in Chevron Corp.'s businesses in South
Africa and Botswana, in a roughly $900 million deal that
underscores the ambition of China's struggling oil companies to
earn more money abroad as profits shrink at home.
The Chinese company, better known as Sinopec, said Wednesday it
will acquire a 75% stake in Chevron's South Africa assets including
a Cape Town refinery and hundreds of gas stations. The other 25%
will be owned by local shareholders as required by South African
regulations.
Sinopec will acquire all of Chevron's Botswana subsidiary.
The deal, if completed, would mark a significant foray into
Africa by China's largest refiner, which is seeking new markets to
sell gasoline, diesel and other products as growth at home slows.
The state-controlled Chinese company said it planned to invest in
technological upgrades for the businesses if the deal was approved,
although it didn't provide details.
For Chevron, the deal with Sinopec would be part of a broader
strategic rethink to sell down billions of dollars of assets
world-wide. The San Ramon, Calif., company has already been paring
back its Asia operations, and some observers had been expecting the
deal's announcement this week.
"We believe the deal makes broad commercial sense for Chevron,"
said analysts at BMI Research in a note this week ahead of the
deal.
Chevron confirmed the deal and said it selected Sinopec as "the
preferred bidder" for the assets due to its better offer and "the
strategic value this investment offers to their longer-term
strategy in Africa."
Despite its relatively modest size, the deal will likely catch
the eyes of investment bankers and energy executives globally, many
of whom have been eagerly awaiting signs that China's oil companies
were returning to global deal making after a hiatus. An
anticorruption campaign by China's president, Xi Jinping, has
targeted graft in the oil industry in particular, which bankers and
executives in China say contributed to fewer overseas deals in
recent years.
At the same time, Sinopec says it must increasingly seek profit
outside its home market. Falling diesel demand in China has
contributed to a vast glut of supply, which has eaten away at
refining margins that Sinopec relies on for profit.
Overseas deals help it to hedge its bets on China's economy as
it increasingly shifts to rely more on services and other
less-energy intensive sectors for growth.
BMI Research said the South African deal provided a good chance
for Sinopec to expand its revenue streams. Oil storage tanks in
South Africa included in the deal would also help it improve its
burgeoning global trading operations through arbitrage and other
opportunities.
Under the deal, Sinopec said it would retain the Caltex brand
for the Chevron gas stations included in the deal for "five to six
years" before it rebranded them.
Write to Brian Spegele at brian.spegele@wsj.com
(END) Dow Jones Newswires
March 22, 2017 09:01 ET (13:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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