CNOOC unit seeks A-share IPO

State-owned oil service and engineering firm sets target of raising 3.1 billion yuan in the market amid sluggish demand

China National Offshore Oil Corp's oil service and engineering unit is seeking an initial public offering on the A-share market to pay for its long-term loans amid sluggish oil demand, according to a regulatory filing on the website of the country's securities watchdog.

CNOOC Energy Technology and Services Ltd says it aims to raise about 3.1 billion yuan ($462.8 million; 418 million euros), of which 1.5 billion yuan will be used to repay debts to banks as well as its parent company CNOOC, according to the prospectus on the website of the China Securities Regulatory Commission.

The Beijing-based company is one of three companies owned by CNOOC in the oilfield service and engineering business sectors. The other two listed companies are China Oilfield Services Ltd and Offshore Oil Engineering Co Ltd.

The business operations of these companies have overlapped, despite the fact that they operate independently, analysts say.

The main activity of Offshore Oil Engineering Co is prospecting and exploration, while China Oilfield Services Ltd focuses on oil and gas exploration. The yet-to-be-listed company engages in oil and gas production with part of its business in exploration.

A senior analyst with China Securities Co Ltd says overlapping businesses of a listed company under the same parent company would not hinder the listing process, but the downward trend of oil prices as well as the long-term debt of the company would cast a shadow over the potential float.

"It is quite common for subsidiaries of large state-owned energy companies to have similar businesses, because it is a monopoly industry," the analyst says. "A possible IPO is not affected by these factors."

The market potential and the company's profitability are the key elements that will be evaluated by the country's authorities in the process of giving their approval for an IPO, according to a source with knowledge of the issue who requested anonymity.

"It needs at least two years for a final approval, considering the long waiting list of companies planning IPOs," the source says. "I think there is a good chance that the company will not be able to pass it."

Last year, the firm said its debt to equity ratio saw an uptick, taking it to 7 percent higher than the industry average, and its loan repayment dates were approaching.

The unit needs to pay off a loan of 2.52 billion yuan this year, about 859 million yuan in 2017, and 654 million yuan in 2018. Also, it has delayed debt payments of 2.93 billion yuan.

The company raked in 3.457 billion yuan in sales last year, a decline of 21.4 percent compared with that of the previous year. Meanwhile, the net income contributed to its parent company was 1.45 billion yuan, down 26.9 percent compared with the previous year.

Cai Xiao contributed to this story.

Contact the writers through lvchang@chinadaily.com.cn

(China Daily Africa Weekly 07/22/2016 page26)