China Invests African Oil

Sinopec to Buy Chevron’s South Africa Assets for $900 Million -Update

03/22/17 09:01 AM EDT

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.

http://www.morningstar.com/news/dow-jones/TDJNDN_201703224562/sinopec-to-buy-chevrons-south-africa-assets-for-900-million-update.html

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