🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Stocks

ANALYSIS-China oil deals flow where politics less involved

Published 06/25/2009, 05:15 AM
Updated 06/25/2009, 05:32 AM
RIO
-
TGT
-
0386
-
0883
-

* Deals easier where politics takes a back seat

* Addax buy to give Sinopec much-needed upstream assets

* Deal helped by Addax shareholder, Africa asset base

By Joseph Chaney and Sui-Lee Wee

HONG KONG, June 25 (Reuters) - Sinopec's $7.2 billion bid for oil explorer Addax Petroleum is a sign that China's energy giants find it easier to secure reserves in parts of the world where there are fewer hang-ups about Beijing owning local natural resources.

Africa and the Middle East, where Swiss-based Addax has its main assets, are more politically disposed to China than are developed nations such as the United States, where local politicians blocked CNOOC's $18.5 billion bid for oil company Unocal in 2005, analysts say.

Earlier this month, Anglo-Australian miner Rio Tinto rejected a $19.5 billion tie-up with China's state-owned Chinalco -- a deal that had triggered political and shareholder opposition.

"At the end of the day, they may wonder whether it's a waste of time going after targets in the developed world," said Macquarie analyst David Johnson.

"The chances of success are higher in Africa, South America and Kazakhstan than other parts of the world."

Until now, political sensitivities in the West have limited China's outbound investments in resources largely to deals executed on the back of loan-for-oil tie-ups.

In the past half-year, China has lent more than $45 billion to Russia, Brazil, Venezuela and Kazakhstan in exchange for long-term crude supplies.

State-owned Sinopec Group, Asia's top oil refiner, knocked out rival Korea National Oil Co with an offer that is more than four times Addax's stock price in November, and which is China's biggest overseas takeover.

Addax, based in Switzerland but operating in Africa and the Middle East, has been on the radar of Asia's acquisitive energy firms since February, when CNOOC and India's Oil & Natural Gas Corp were also touted as potential suitors.

The Addax deal will give Sinopec a strong foothold in oil-rich West Africa and Iraqi Kurdistan and a steady supply of oil for its refining operations.

"The listed company is in desperate need of upstream oil assets to feed its downstream business," said Gordon Kwan, Hong Kong-based head of energy research at Mirae Asset Financial, referring to listed Sinopec Corp.

"Without that, it would be at the mercy of China's fuel pricing policy."

BIG SHAREHOLDER EYES EXIT

Sinopec's bid was also helped by the fact that Addax's CEO, Swiss citizen Jean Claude Gandur -- one of Europe's richest men -- is also its major shareholder with about 38 percent of the company, and was eager to cash out.

"It's not that often you have a major shareholder like this -- that's the main reason why this one became available," said a Hong Kong-based investment banker who has advised Chinese energy giants on outbound deals, but was not authorised to speak publicly about the matter.

Other Chinese energy firms are eyeing overseas assets in Africa and the Middle East, though future deals might not be as simple as Addax, especially if multiple shareholders disagree about the sale of the target company, bankers say.

CNOOC, China's top offshore oil and gas producer, has hired Goldman Sachs to advise it on a bid for a stake in Africa-focused oil and gas firm Kosmos Energy, in a deal that may be worth about $3 billion.

Sinopec's deal with Addax, if completed, should help meet the Chinese giant's need for quality upstream assets to feed its refining business, analysts say. At least 60 percent of Addax's shareholders must approve the deal.

Sinopec Group, parent of Sinopec Corp, may inject Addax's upstream assets in Nigeria, Gabon and Cameroon, as well as the Taq Taq field in the Kurdistan region of Iraq, into its listed unit by the year-end, analysts said.

Sinopec Group lost about $16.7 billion in its refining businesses last year, as soaring crude oil prices in the first half-year and low state-capped fuel prices squeezed margins. (Editing by Ian Geoghegan)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.