Caixin

CNPC to Save Money-Losing Unit with Financial Asset Injection

By Huang Kaixi and Chen Na

(Beijing) — China's largest oil producer, China National Petroleum Corp. (CNPC), has disclosed plans to inject financial assets into one of its money-losing listed units — the latest effort by a big state-owned firm to rescue one of its struggling businesses.

The publicly listed Jinan Diesel Engine Co. Ltd., a CNPC-owned diesel-engine maker, will buy its parent company's financial asset unit, PetroChina Capital Ltd., for 75.5 billion yuan (US$ 11.3 billion) using cash, asset swaps and share issues, according to a filing with the Shenzhen Stock Exchange on Sept. 5. Caixin first learned of the draft plan last month, but no public disclosures were made at the time.

An increasing number of state-owned enterprises are trying to inject their profitable financial services units into their other money-losing publicly listed entities, according to Caixin's own observations. Such moves are a variation on a broader trend among state-run companies, which often shuffle various assets into and out of their publicly listed units to make them more attractive to investors.

Such moves typically see listed units of big state-owned firms buy attractive assets with big growth potential from their parent companies, often at bargain prices. Similarly, those same public companies often sell underperforming assets to their parent firms for inflated prices that they would never be able to get in the open market.

At least seven companies in the energy, steel, mining and shipbuilding industries announced plans to acquire financial assets from their state-backed parents between January and August, according to state media reports and company documents. Critics said the strategy runs counter to Beijing's effort to cut overcapacity in bloated state-owned sectors by supporting money-losing companies.

That kind of conflict occurs regularly in China, and often sees central leaders in Beijing clash with local leaders who have different agendas. For example, Beijing has sought recently to close down factories making low-quality products in sectors with too much capacity like steel and coal. But regional officials often resist such change because of concerns about losing important contributors to their local economies.

Jinan Diesel, based in the eastern province of Shandong, has posted a loss for two consecutive years, and is at risk of being delisted if it continues to lose money this year.

PetroChina Capital earned 6.1 billion yuan in 2015 and 3 billion yuan in the first five months of this year, according to a Jinan Diesel draft acquisition plan viewed by Caixin in August. The company holds financial licenses in the fields of banking, insurance, financial leasing, trusts, brokerage and investment funds.

In addition to acquiring PetroChina Capital, Jinan Diesel is also planning a private placement to raise up to 19 billion yuan from 10 investors to boost its stakes in three other CNPC subsidiaries that provide banking, financial leasing and trusts investment services, the Shenzhen filing said.

Contact reporter Chen Na (nachen@caixin.com); editor Doug Young (dougyoung@caixin.com)

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