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Sinopec IPO

Brian Hicks

Written By Brian Hicks

Posted May 7, 2013

Sinopec Engineering is looking to make a splash in its IPO.

Sinopec Engineering Group, a wing of Sinopec Group (NYSE: SNP), is offering 1.33 billion shares at a price of HK $9.8 to HK $13.1 per share. Altogether, the shares could raise a sum of HK $17.4 billion ($2.24 billion).

The engineering subsidiary of Sinopec should be of particular note, given how vital technology and infrastructure has been in increased drilling operations in North America and other parts of the world. As far as the company is concerned, now is the time to begin reaching for higher skies with wider investment backing.

There is no unanimous consensus among investors when it comes to Sinopec’s IPO. Some are enthusiastic about the debut, while others are skeptical and will be waiting on the sidelines.

Critics are concerned that Sinopec is debuting its IPO for roughly 10 to 15 times the company’s projected earnings for 2013. But rival company Wison Engineering Services Co. (HKG: 2236) is currently trading over 10 times its earnings for the same year, as Bloomberg reports

Some analysts also believe that Sinopec Engineering’s close ties to its parent company will actually limit growth in the future.

Analysts on the more positive side believe that Sinopec Engineering has a larger role to play on the world stage in the future, and many investors are excited about the company’s potential growth.

Sinopec Engineering has benefited from its host company, but the engineering branch is showing signs of becoming a successful company in its own right.

The engineering department relied on its mother company for 66 percent of revenue in 2010, but that number has fallen to 50 percent in 2012.

As of now, Sinopec Engineering is entirely dependent on its mother company, but with the engineering sector becoming such an important component within the energy industry, chances are the company can quickly wean itself from Sinopec Group.

Sinopec Engineering

Sinopec Group, otherwise known as China Petroleum & Chemical Corp., is one of the largest oil and gas exploration companies in the world. The company has expertise in energy exploration, refining, marketing, and many other energy operations.

Sinopec Engineering has the same specialized focused, only more-so in industrialized and infrastructure-related matters.

Such a company can add improvements to infrastructure in oil and gas fields across the world. We know that oil fields in Africa, Alaska, and the North Sea region are all in need of more efficient upgrades, and a company like Sinopec Engineering could potentially fill such a void.

The engineering division of Sinopec currently has business interests across Asia and North America, but operations are primarily conducted in China.

There is little doubt that Sinopec Engineering can make vast contributions to the worldwide petroleum sector, but it remains to be seen if the shares will perform well on the public market.

Benefits of IPO

J.P. Morgan Chase (NYSE: JPM) is optimistic about Sinopec Engineering’s chances on the public market, and the company will ultimately benefit from Sinopec’s rise in the energy arena, since the massive banking firm is one of the underwriters for the IPO offering.

Sinopec Engineering may also inadvertently revitalize the IPO market in Hong Kong, which slid to the fourth spot globally, having once been the most desired IPO center in the world.

The offering is considered the largest since People’s Insurance (HKG: 1339) raised 3.6 billion in funds last November.

Other companies engaged in the same field as Sinopec Engineering may find themselves in the spotlight.

If Sinopec Engineering demonstrates its financial prowess on the IPO market, its rival Wison could be one of many companies that could benefit, since its offering began in December of last year.

Besides the investment market, enough investor support could help companies that need upgrade requirements abroad.

The entire British government could benefit from Sinopec’s services.

Last year, Sinopec purchased a 49 percent stake in an Aberdeen project from Talisman Energy (NYSE: TLM) for $1.5 billion.

Sinopec Engineering could be a great help to the British government as they try to foster more drilling and investment in the North Sea and Atlantic. If Sinopec Engineering grows large enough, the company could play a helpful role in resurrecting North Sea drilling activities.

Sinopec also purchased interests in Mississippi Lime from Chesapeake Energy (NYSE: CHK) in February of 2013. Chesapeake will remain chief operator in the acreage, but both companies will share costs.

Total (NYSE: TOT) also sold Nigerian assets to Sinopec in November of 2012, and Total is committed to offshore projects near Angola.

Noticing a trend?

Sinopec is one of multiple energy companies from China making inroads into diverse oil fields around the globe.

Sinopec Engineering has been a part of these deals in some form or another, but it will take some time for the bird to fly away from the nest. Sinopec Engineering would most likely benefit from the history of Sinopec Group as it embarks on projects of its own in the future.

Business contacts from the mother company will surely make Sinopec Engineering a formidable presence in the energy sector and financial markets.

It is likely that Sinopec Engineering will become a self-reliant company in the future, so keep a lookout for the entire Sinopec umbrella as it continues to unfold. 


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