Regulator OKs Sinopec's $2.93B Bond Sale

SHANGHAI (Dow Jones Newswires), May 17, 2010

Sinopec, said Monday it has been approved by China's securities regulator to sell up to CNY20 billion ($2.93 billion) worth of bonds, in the country's largest ever exchange-listed corporate debt issue.

The state-run refiner's proposed bond sale on the Shanghai Stock Exchange is part of Beijing's efforts to deepen China's vast but still underdeveloped domestic fixed-income market by boosting the role of the smaller and less vibrant exchange-traded segment of the country's bond market, which is dominated by interbank transactions.

As the world's third-largest economy continues to expand rapidly, the Chinese government is keen to promote the bond market as well as its volatile equities counterpart to reduce the reliance of the country's firms on bank loans, which nearly doubled in 2009.

In a brief statement filed to the Hong Kong Stock Exchange, Sinopec, Asia's largest refiner by capacity, said the China Securities Regulatory Commission approved the offering on Friday. It didn't give other details.

Shortly before the company confirmed the news, two people familiar with the situation told Dow Jones Newswires that Sinopec will sell the bond in a CNY5 billion five-year tranche and a CNY15 billion 10-year portion, adding the sale could come as soon as this week.

"It's quite a good time for Sinopec to sell the bonds now, as the selloff in the local equities market will boost demand for low-risk paper issued by a large state-owned company," said Qu Qing, a bond analyst at Shenyin Wanguo Research & Consulting Co.

The country's benchmark Shanghai Composite Index ended down 5.1% at 2559.93 Monday, its biggest single-day decline in more than eight months, because of concerns Beijing may be preparing to introduce severe new measures to avoid a bubble forming in the property market.

Qu said he expects the five-year tranche to be priced around 3.8% and the 10-year portion around 4.5%. The five-year Chinese government bond was yielding 2.59% Monday, with the 10-year bond at 3.28%.

Sinopec will use the proceeds from the sale to repay bank loans and supplement working capital after a recent acquisition in Angola and further overseas expansion plans, the people said.

The bonds are rated AAA by China Lianhe Credit Rating, they said, adding that China International Capital, Goldman Sachs Gaohua Securities, Citic Securities and UBS Securities are the deal's main underwriters.

The plan comes at a time when Sinopec is seeking overseas investments in oil and gas resources to meet Beijing's demand for energy and commodities.

Sinopec said in March it agreed to buy a 55% stake in Sonangol Sinopec International from its parent for US $2.46 billion in its first acquisition of overseas upstream assets. Last month, the company said it was "studying the investment opportunity" to build a large refining and petrochemical complex in Singapore.

Exchange-traded corporate bonds are one of three categories in China's complex corporate bond market. Such bonds are typically sold by listed companies, and trading is supervised by the China Securities Regulatory Commission.

The Chinese central bank operates a separate medium-term note program and approves sales of short-term bills and bonds from financial institutions on the interbank market.

The National Development and Reform Commission, China's economic planning agency, regulates longer-term bonds on the interbank market, which are mostly issued by state-owned enterprises and government agencies.

Beijing has taken steps to develop its exchange-traded corporate bond market in the past few years to help Chinese companies reduce their reliance on bank loans, as soaring credit growth has stoked concerns about inflation and asset bubbles.

The country's securities and banking regulators issued a joint statement last year to allow China's 14 domestically listed banks to invest in bonds listed on local stock exchanges on a trial basis, ending a 12-year ban.

Copyright (c) 2010 Dow Jones & Company, Inc.