China Petroleum and Chemical Corp. (Sinopec), Asia's biggest refiner, is poised to privatize its listed subsidiaries, beginning with Sinopec Beijing Yanhua Petrochemical, to streamline its assets.

Sinopec, could buy its remaining shares in Yanhua and delist the unit to fulfil the commitment it made during its initial public offering of cutting connected transactions with its listed subsidiaries.

Yanhua, the largest resin and plastics maker in China, halted the trading of its shares Wednesday on talks of the restructuring.

"We have a commitment to investors during our IPO to consolidate the assets," a Sinopec official said.

Other listed subsidiaries which are expected to undergo a shake-up include Sinopec Yizheng Chemical Fibre, Sinopec Shanghai Petrochemical and mainland-listed Sinopec Qilu.

Still analysts said the time may not be ripe as profit margins of Chinese petrochemical producers are expected to peak next year so Sinopec should wait until the year after to privatise Yanhua.

Privatising Yanhua now would have the advantage of boosting Sinopec's profits but it would come at a higher price for the refiner.

Yanhua's net profit soared to 633.9 million yuan in 2003, up 203 per cent from a year ago, on strong petrochemical margins.

The firm's management, however, has said ethylene margins might be weaker in the fourth quarter than the third quarter.

"Petrochemical prices have eased recently and although we expect Yanhua's profit margins to remain firm in 2005, we believe the high level is not sustainable and expect margins to ease in 2006," said Lorraine Tan, director of research at Standard & Poor's Investment Services Asian equity research.

A move to buy over Yanhua's shares has to be subject to the approval of its minority shareholders who have seen their stocks surge 13.22 per cent so far this year, compared to the 12.76 per cent gain in the Hang Seng Index.

It would make sense to start with Yanhua since the company has the smallest free float among other listed subsidiaries of Sinopec, UOB Kay Hian analyst Michael Lee said.

He added that Sinopec could also engage in a shares swap initially instead of buying over all of Yanhua shares.

Some analysts say Sinopec may not privatise Yanhua immediately due to the latter's high share prices.

Daiwa Institute of Research associate director Rachel Tsang said: "It makes sense if Yanhua buys assets from its parent because it needs upstream supply."

Market watchers suggest that Sinopec, which already holds 70.01 per cent of Yanhua, will need to pay US$420 million for Yanhua's outstanding shares, based on its market value of US$1.4 billion.

BOC International vice-president Lawrence Lau has cut earnings forecasts on Yanhua by 2-6 percent, given that the product prices fell recently.

(Source: Shenzhen Daily/Agencies)