Sinopec raises $3.1 billion from private H-share placement

China Petroleum & Chemical Corp, commonly referred to as Sinopec, has raised HK$24.04 billion ($3.1 billion) from a private placement of new H-shares.

The deal, which is the largest equity transaction in Asia this year, was completed late last night after a wall-crossing exercise that, according to a source, had been going on for a couple of weeks.

There were some rumours in the market in the early evening about a large deal in the works, but when nothing had hit the market by 8pm, it was assumed that it would probably come on a different day.

Instead, the deal went somewhat below the radar as it wasn’t offered to the wider investment community. As per Chinese regulations, private H-share placements cannot be sold to more than 10 accounts. The source said the deal did go to 10 investors, which included both existing shareholders and new long-term investors with a capacity to take on very large positions.

Assuming the shares were split fairly evenly between the buyers, they each invested about $300 million.

Sinopec sold approximately 2.84 billion new H-shares, which accounted for 17% of its existing Hong Kong-listed H-shares and 3.2% of the company as a whole. Based on the combined trading volume in Hong Kong and New York, the deal translates into about 30 days of trading.

The shares were sold at a fixed price of HK$8.45 apiece, which translated into a 9.5% discount to Monday’s close of HK$9.34.

Sinopec’s H-share price has gained 45% from its 2012 lows in July last year and is up 6.4% so far this year. However, the stock has only just returned to the levels where it traded this time last year, before assuming a declining trend that lasted throughout the first half.

The company said in a statement published on the Hong Kong stock exchange website at about 11pm last night that it sees the placement as a good opportunity to optimise its capital structure. The share sale will also allow it to increase its shareholder base by attracting “a number of high calibre investors,” it said. It didn’t specify the use of proceeds, saying only that they will go towards general corporate purposes.

Sinopec is the second-largest oil and gas company in China and the largest refiner. A week-and-a-half ago it announced that its combined oil and gas production increased by 4.8% in 2012 from a year earlier to 427.6 million barrels of oil equivalent. The production of crude oil was up 2%, while the production of natural gas increased by 15.7%.

Production of gasoline and kerosene were both up by about 9.3% on the year, while diesel production increased by 0.3%. The production of ethylene and synthetic resins, fibres and rubbers all fell, while urea production rose almost 35% from a low base.

Sinopec is the second largest oil and gas company in China and the largest refiner. The company has already secured approvals for the private placement both from the China Securities Regulatory Commission (CSRC) and from the State-owned Assets Supervision and Administration Commission of the State Council (Sasac).

This is the largest placement in Asia since AIG sold the rest of its shares in AIA through a $6.4 billion block trade in mid-December last year. It is also believed to be one of the largest, if not the largest, sole-bookrun follow-on offerings in Asia ever.

Goldman Sachs was the bookrunner.