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Effectively Strengthens Competitive Advantage of Core Business Increases Profitability and Stability of Earnings Creates a Platform for Future Development with Support from Sinopec Group
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HONG KONG, Dec 18, 2011 - (ACN Newswire) - Sinopec Kantons Holdings Ltd ("Kantons" or the "Company"; together with its subsidiaries (the "Group"); Stock Code: 934), is pleased to announce its signing an agreement of acquiring the equity interest in the Five Crude Oil Terminal Operators ("Five Joint Ventures") from its parent company, China Petroleum & Chemical Corporation ("Sinopec Corp.") at an aggregate consideration of RMB1,809,807,300. The Company also proposed to raise capital by the way of rights issue in order to finance the acquisition. The management believes the acquisition will generate a profound significance to the Group's industry position and strategic role in relation to terminal and shoreline resources. Moreover, this will strengthen the Group's competitive advantage, significantly enhance core competencies, increase profitability, as well as position the Company for the future overseas expansion of its oil terminal and storage business.
Creation of one of Asia's largest oil terminal businesses and attractive growth profile driven from China's long-term projected energy consumption growth
With the Acquisition, the Group will become a key player providing crude oil terminal and related logistics services in China, with a unique portfolio of strategic assets. The acquisition will increase the Group's annual design capacity to a total of approximately 225 million tonnes, which will position the Company as the largest crude oil terminal business player in China and one of the largest in Asia.
Mr. Ye Zhi Jun, Managing Director of Kantons, stated, "Driven by China's growing demand for crude oil and its limited domestic supply and insufficient strategic oil reserves, the demand for crude oil terminal capacity and related logistics services is expected to grow significantly in the coming years, Moreover, the PRC government has set a target for China to increase its strategic crude oil reserves from around 30 days to 90 days, in accordance with the standards of the Organization for Economic Co-operation and Development (OECD) representing a huge extent for growth. Sufficient crude oil storage, facilities and capacity are crucial for China's economic development particularly in times of high crude oil price volatility. Therefore, this acquisition is aimed at capturing the business opportunity derived from the strategic demand."
Increasing scale and strengthens competitive advantage of Company's core business
Upon completion of the Acquisition, the number of crude oil terminal companies controlled or jointly owned by the Group will increase from two to seven, and the number of berths increasing from 14 to 24, of which nine berths will have the capacity to accept VLCC vessels. Annual design capacity will increase by approximately 165% from approximately 85 million tonnes to approximately 225 million tonnes of crude oil. The Acquisition will significantly increase the scale of the Group's crude oil logistics business and will substantially enhance the Group's position to become the primary crude oil terminal platform in China.
Mr. Ye indicated, "As there are only a limited number of deepwater terminals in China, with the continuous increase in the size of international oil carriers, it will become increasingly important to own deepwater terminals that have the facilities to accommodate VLCC size vessels and larger. This will be a notable advantage for the Company after the acquisition and makes Kantons a unique investment opportunity. As a result of the acquisition, the Group will have interest in crude oil loading and unloading terminals in the three major economic zones along the coast including East China, North China and South China."
In addition, the Acquisition will substantially increase the Group's market share in the crude oil logistics sector, thus enhancing its market position and broadening its experience and expertise in crude oil terminal operations. Combining the experience and expertise of the Group's existing management team with that of the Five Joint Ventures will strengthen the capabilities of the Group to operate and manage the portfolio of crude oil terminal assets and to allow for future expansion.
Increasing profitability and stability of earnings
As introduced by Mr. Ye, "Crude oil terminals are strategically planned and controlled by the PRC government, and face limited availability of suitable deepwater ports and high initial capital expenditure requirements, which together give crude oil terminals in China monopolistic characteristics. Consequently, tariffs are heavily regulated by the PRC government. In addition, crude oil terminals tend to have relatively low costs and high profit margins. In 2010, the average EBITDA margins and average net income margins were 88% and 50%, respectively for Qingdao Shihua, Tianjin Port Shihua and Ningbo Shihua. Crude oil storage contracts also tend to be long-term in nature, providing meaningful earnings visibility. These factors result in a business model of crude oil terminals that generates relatively stable revenues with high operating margins and profitability."
The Acquisition is expected to materially increase the Group's profitability. In 2010, the Five Joint Ventures recorded total net profit of approximately RMB364 million. Moreover, as Caofeidian Shihua was found in April 2011, while Ningbo Shihua's second phase terminal and Rizhao Shihua's terminal are currently still in trial operation stage, the future revenue and profitability of the Five Joint Ventures is expected to benefit from the earnings contribution of these terminals once they become fully operational.
Creation of a platform for future development of the Company with support from Sinopec Group
As a direct result of the Acquisition, the Group will substantially increase its fixed assets as well as the scale and stability of its earnings and cash flows whilst still enjoying the continued support from its major shareholder and customer, China Petrochemical Corporation ("Sinopec Group Company").
"This will make finance easier for the Group to fund continual development of crude oil shipping terminals or oil storage facilities businesses, in line with the Company's strategic goal to become the world leading petrochemical storage and logistics company. As part of its development, the Group intends to explore how it may continue its cooperation with Sinopec Group in order to make further development on crude oil terminal logistics." Mr. Ye concluded.
Please refer to the announcement and circular published on the Hong Kong Stock Exchange and the company website for more detail information regarding on the acquisition and rights issue.
Topic: Merger & Acquisition
Source: Sinopec Kantons Holdings Limited
Sectors: Gas & Oil, Daily Finance, Energy, Alternatives, Daily News
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From the Asia Corporate News Network
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