By Chen Aizhu
BEIJING (Reuters) - Chinese state-run oil and chemicals group Sinochem is in advanced talks to transfer its 33.6 percent stake in a debt-laden refinery to state giant PetroChina (HK:0857), part of Sinochem's plan to shed non-core assets ahead of a $2 billion listing of its energy arm, people briefed on the matter said.
The move is in line with a transformational strategy pushed by Sinochem chairman Ning Gaoning to zero in on core assets as it finalises a merger with ChemChina that will create the world's biggest industrial chemicals firm, worth around $120 billion (£94 billion).
It isn't yet clear what the valuation of the stake in the export-focused 200,000 barrels-per-day (bpd) West Pacific Petrochemical Corp (WEPEC) refinery will be, the people said.
Two sources, who have knowledge of WEPEC's finances, estimated the refinery's debt exceeded assets of around 10 billion yuan ($1.45 billion) by nearly 50 percent at end-2017, due to deep losses in 2008 and 2014, even after refining margins improved over the past few years.
PetroChina has a stake of about 28 percent in WEPEC.
Though advanced, the talks on a deal may still take months or longer to reach a conclusion, they said, declined to be named as the discussions were not public. Majority control of WEPEC could help PetroChina consolidate its dominance in the northeast China fuel market and pave the way for future plant upgrades.
Both Sinochem and PetroChina declined to comment.
"Sinochem has two main reasons to leave (WEPEC) - the plant's poor balance sheet, which is not going to help Sinochem's (energy unit) IPO," one person said. "Despite being its single-largest shareholder in the refinery, Sinochem does not have a domestic offtake deal to manage its share of fuel production, leaving it primarily as a financial investor."
PetroChina manages and operates WEPEC, based in northeastern port city Dalian. As well as Sinochem, other stakeholders include France's Total (PA:TOTF), with 22.4 percent, and local firms backed by the Dalian government.
Total itself previously sought to exit WEPEC after nearly two decades of investment, according to people familiar with the matter, and industry sources close to Total said the French firm still intends to pull out. A Total official in Beijing couldn't immediately be reached for comment. (https://reut.rs/2M9H2Ih)
In exchange for its exit, Sinochem has asked for a role as WEPEC's agent for crude oil imports and refined fuel exports under a 10-year deal, according to four people briefed on the talks.
Sinochem's plan comes with private chemicals giant Hengli Group set to start up a mega-refinery and petrochemical complex also in Dalian later this year. That facility, costing some $10 billion, consists of a giant 400,000-bpd crude oil processor and a 1 million tonne-per-year ethylene plant.
The Hengli venture, to be followed by a similar integrated complex being built by private group Zhejiang Rongsheng Group on the east coast, is set to shake up the country's refining industry, long-dominated by state giants like PetroChina.
Reflecting the changing landscape, Sinochem last January teamed up with Hengli to procure crude oil and marketing refined fuel for the private upstart. It also plans to expand its fully owned Quanzhou refinery in south China, a top source of profits over the past two years.
