Sinochem Trading Unit Files for Hong Kong Listing

A major trading, refining and retail unit of state-owned chemical and energy giant Sinochem Group filed for an initial public offering (IPO) on the Hong Kong Stock Exchange as it looks to fund further research and development.

Sinochem Energy Co. Ltd. made the filing on Tuesday. While it did not reveal how many shares will be offered, industry analysts expect the placement to generate about $2 billion.

The company, wholly owned by subsidiaries of Sinochem Group, is responsible for corporate technology, and the trading, refining, storage and distribution of its parent’s oil petroleum products, according to its prospectus.

Sinochem Energy has launched several online oil trading information portals such as mycrudeoil.net, which it intends to use to further open domestic and foreign petroleum markets, the prospectus says. The company aims to use funds raised through the IPO to develop these products and other technical upgrades across its business. Its prize asset is a petrochemicals refinery in the Fujian province city of Quanzhou, which is one of China’s top three such facilities, according to the prospectus.

The listing comes as parent Sinochem Group prepares for its merger with China’s other leading state-owned chemical company, China National Chemical Corp. (ChemChina), in a move that will create an industry titan with operations spanning the globe with annual revenues exceeding $100 billion.

ChemChina announced its $49 billion takeover of Swiss agrichemicals giant Syngenta AG last year. It is thought ChemChina’s merger with Sinochem Group will help bolster the former’s balance sheet, while the Sinochem Energy listing is likely motivated by a similar need to secure external funding.

The listing also drives forward the government’s ambition of experimenting with mixed-ownership reform in the state sector, as it looks to encourage competition and innovation without relinquishing its grip on strategically important industries.

While experimentation has been relatively limited so far, the recent appointment of President Xi Jinping’s key economic adviser, Liu He, as head of the government’s SOE reform working group may lead to more listings in the near future. This week, China Tower Corp. Ltd., operator of the cellular base stations used by China’s three wireless carries, also announced plans for a Hong Kong IPO in a move expected to raise $8.7 billion.

Sinochem Energy reported a profit of 1.2 billion yuan ($176 million) in 2017, down from 2.24 billion yuan in 2016 and 5.2 billion yuan a year earlier, according to the company’s prospectus.

Morgan Stanley, CLSA and BOC International are the joint sponsors of the deal.

Contact reporter Ke Dawei (daweike@caixin.com)