Sep 03, 2013 06:55 PM

CNPC Storm Hits Shares of HK-Listed Oil Engineering Company

(Hong Kong) – A corruption investigation into China National Petroleum Corp. (CNPC) has cast a shadow over a major oil engineering company, pushing its share price in Hong Kong down.

Hong Kong-listed Wison Engineering Services Co. said on September 2 that its chairman and controlling shareholder, Hua Bangsong, is "assisting investigations by related authorities," sparking speculation the company is linked to a corruption scandal engulfing CNPC, the country's largest producer of oil.

Wison, which has worked closely with CNPC on petrochemical and refinery projects, suspended trading of its shares on September 2. On the previous trading day, it saw a 16.5 percent decline in share price, mainly due to speculation about its relationship with CNPC.

Also on September 1, Xinhua said the Communist Party was investigating Jiang Jiemin, head of the state-owned assets regulator and the former boss at CNPC. Days earlier, it reported four senior CNPC executives were being investigated and had resigned.

Hua owns 78.1 percent of Wison, making him its largest shareholder, the company says. Media reports have questioned whether he actually owns the shares or holds them for unidentified investors. The company said on September 2 that Hua is the real owner of the shares.

Wison's business is centered on design, equipment purchases and construction management services for petrochemical and refining projects. Since it was established in 1997, is has maintained a close partnership with CNPC and has been involved in many CNPC refining projects.

CNPC and its subsidiaries were responsible for 63 percent of Wison's revenue in 2009, 80 percent in 2010 and 58.4 percent in 2011, company documents show.

But the company said on September 2 that CNPC's contribution to its revenue fell significantly in 2012. It said that in the first six months of 2013 revenue from CNPC accounted for only a tiny fraction of Wison's total revenue.

Wison had revenue of 4.9 billion yuan in 2012 and profit of 700 million yuan, company reports show. In the first half of this year, revenue rose 131 percent year on year to 1.99 billion yuan. Revenue from its petrochemical business enjoyed year-on-year growth of 407 percent.

However, the company's share price started to fall in mid-August due to the reports over Hua's shareholding and the company's ties with CNPC. Then the news that four CNPC executives were being investigated further hurt share prices. As of September 2, the company's market value had fallen nearly 30 percent from its IPO value in December.

An analyst in Hong Kong said Wison's business performance has been sound, but investors are concerned that its close links to CNPC involved illegal equity transactions.

The 47-year-old Hua has a low public profile. Company information shows the native of the eastern province of Jiangsu has worked in the petrochemical industry for 23 years and established Wison in 1997 as an engineering solutions provider. In 2000, Hua had the company focus on petrochemical projects. 

The company's listing prospectus in 2012 shows it held three major petrochemical contracts with CNPC subsidiaries that year, namely Daqing Petrochemical Co., Lanzhou Petrochemical Co. and Dushanzi Petrochemical Co.

It has also participated in CNPC's oil refining and ethylene production projects in Dalian, in the northeastern province of Liaoning; in the southwestern province of Sichuan; and in Jiangsu.

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