(China Daily)
Updated: 2008-01-17 09:41

Shareholders of two China Petroleum & Chemical Corp units rejected a plan to increase the amount of stock available on the mainland market, anticipating instead that the parent will buy out minority investors at a premium.

Shareholders of Sinopec Shanghai Petrochemical Co and Sinopec Yizheng Chemical Fibre Co have now twice rebuffed the proposal, first made in November 2006. The companies gave the result of shareholder votes in statements to the Shanghai Stock Exchange yesterday, without providing reasons.

Sinopec, as Asia's biggest refiner is known, improved its original offer as it seeks to comply with a government instruction to release shares tied up in State-controlled holdings.

Shanghai Petrochemical has gained 147 percent in the past year in Shanghai, and Yizheng Chemical 167 percent, partly on speculation the parent will buy out minority investors.

"Shareholders of the two units want Sinopec to buy them out, but Sinopec won't do it now because their share prices are too high," said Qiu Xiaofeng, an oil analyst with China Merchants Securities Co in Shanghai.

Sinopec offered holders of the units' Shanghai-traded stock 3.2 shares for every 10 owned, the two companies said last month. Sinopec undertook not to sell the newly available shares for 72 months after the proposal is implemented.

The refiner's plan to release non-tradable stock into the market is part of a government program to free up more State-owned shares, which account for about two-thirds of all mainland shares.

Investors in the two units rejected a proposal from Beijing-based Sinopec in 2006 that included a shorter, 36-month lock-up pledge, holding out instead for an offer to buy their shares above the market price. Sinopec has paid minority investors premiums of more than 20 percent for their shares in four previous buyouts of units.

"It is normal that our majority shareholder Sinopec and the minority shareholders have different views as to how the reform should be carried out," Zhang Jingming, Sinopec Shanghai's board secretary, said yesterday. "We will continue to act as a liaison between them, but it's hard to know when there will be an agreement or what the agreement will be."

Sinopec's proposal, approved by regulators, to give investors 3.2 shares for every 10 owned would have been the most generous ratio among mainland companies to have undergone the restructuring, Zhang said.

The units' Shanghai-traded shares have been suspended since Jan 5 pending the outcome of the investor vote.

Agencies