The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Sinopec’s petrol station stake sale could drum up a mixed bunch. The Chinese oil giant is seeking investors to help develop Sinopec Sales, which operates its vast network of filling stations. Prospective buyers from food retail, energy, technology and private equity have been shortlisted, according to Reuters. But the price tag of around $16 billion for a 30 percent stake could force them to club together.
Sinopec Sales operates 30,000 petrol stations. Energy distributors like ENN may see some logic in owning more of China’s fuel delivery network. Yet buyers from a range of other industries see greater potential in developing additional sources of income.
Take retail. Though Sinopec Sales has 23,000 Easy Joy convenience stores, these currently bring in just 1 percent of the group’s revenue. Boosting that figure could be lucrative: for established retailers, profit margins on non-fuel sales are three times higher than the 1.7 percent Sinopec Sales squeezes out at the moment. That explains why Alimentation Couche-Tard, the Canadian owner of Circle K convenience stores, is on the shortlist.
Logistics and technology groups have other reasons for getting involved. Petrol stations could act as collection points for online parcels handled by delivery groups like S.F. Express. Internet giant Tencent, meanwhile, might be interested in Sinopec’s fuel payments network.
A big investment will require a large consortium. At the mooted valuation, a $1 billion cheque would buy no more than 2 percent of Sinopec Sales. Not many companies can justify tying up that much capital in what could prove a passive stake in the unlisted subsidiary of a Chinese state-owned enterprise. Besides, not all investors will get a voice: Sinopec Sales is offering just three seats on an 11-member board to outside investors, according to Bernstein analysts.
Prospective investors will also have to grapple with factors beyond their control. Boosting non-fuel revenue and margins could lift the unit’s valuation in an initial public offering. But Beijing, which regulates fuel prices, has the power to wipe out any revenue gains with the stroke of a pen. Whatever the final roster, outside investors will need to stick together to make the deal work.