China's largest oil refiner is now said to be hoping to raise up to $3.5 billion from the offering which begins roadshows in Hong Kong on Monday. Initially, the company had indicated that it was targeting $2.5 billion to $3 billion in proceeds, but specialists say that it has now decided to be more accommodating to international investors who were in danger of being cut out altogether.
With Morgan Stanley Dean Witter and China International Capital Corp (CICC) as global co-ordinators, the company will continue presentations in Europe later in the week, moving to the US the week after. Pricing is currently scheduled for October 12, with the dual New York and Hong Kong Stock Exchange issue to begin trading on respectively October 18 and 19.
Observers say that because of the likely change, the exact number of shares to be included in the offer has not been finally fixed, but now looks set to top the 18 billion mark (plus 2.7 billion greenshoe) mooted earlier this week. To date, four strategic investors have already committed to take 50% of the IPO float, with three Hong Kong corporates also keen to take sizeable chunks.
Exxon Mobil Far East will invest the lesser of 20% or $1 billion, Shell Overseas Investments 14% or $435 million, BP Amoco 13.5% or $400 million and ABB Asea Brown Boveri 3% or $100 million. On top of these four, Hong Kong conglomerates Cheung Kong, Sun Hung Kai and Hutchison Whampoa have also indicated interest.
Initially the company said that the IPO would equate to 20% of the company's issued share capital, with a 90%/10% split between primary and secondary shares and a 95%/5% split between the institutional and retail book. Because of the size of the offering, the company has obtained a stock exchange waiver from selling 10% during the retail IPO.
Post IPO, parent company China Petroleum & Chemical Corp will only just retain a majority shareholding having completed a debt-for-equity swap with a group of local banks. In return for a 31% stake, the company will issue 21.1 billion shares, with China Development Bank receiving 14%, Cinda Asset Management 13.8%, China Orient Asset Management 2% and China Huarong Asset Management 0.9%.
For Sinopec, pricing will be closely benchmarked by Petrochina, which raised $2.89 billion in April. Key will be whether the former should trade at a discount, flat or at a premium to the latter. Sinopec officials will argue for a premium during roadshow presentations based on future growth forecasts showing that it will outstrip its upstream compatriot.
Since listing, Petrochina has risen from HK$1.28 to a current trading price of HK$1.75, having hit a high of HK$2.125 in late August. The ADRs have also risen from $16.44 to $22.25, having hit a high of 26.375 at the same time. At these levels, analysts say that the company is trading at a very slight discount to DCF.
The offering will be split into three tranches, with BNP Prime Peregrine as joint-lead in Asia, ING Barings taking the same role in Europe and Credit Suisse First Boston in the US. Those banks which have been allowed to write research comprise European syndicate members ABN AMRO, Casenove and DKB, with those in the US and Asian tranches disallowed on the grounds of SEC and HKSE sensitivity to press leakages. These banks comprise Credit Lyonnais, DLJ, Jardine Fleming, Lehman, Merrill Lynch and UBS Warburg.
Fees will total 2.5%, with a 65%/35% split between the selling commission and managers and underwriters fees.
