China Petroleum and Chemical Corp (SHA:600028) Plans To Sell Off 30 Percent of Its Shares, Final Bids Expected Next Week

News has it that Alimentation Couche-Tard Inc (TSE:ATDb) – one of the biggest retailers based in Canada- and China’s Tencent Holdings Ltd (HKG:0700) have made it to the final round of suitors for the $16 billion deal in China’s Sinopec (HKG:0386). China’s Sinopec is the largest retail chain in the world that deals with the distribution of fuel.

Together with these two companies, a number of other corporations have also gotten shortlisted for the deal. The shortlisted corporations include China Life Insurance Co LTd (SHA:601628), Hopu Investment Management, ENN Energy Holdings Ltd (HKG2688) and Affinity Equity Partners.

China Sinopec is also known by the name China Petroleum and Chemical Corp (SHA:600028). The company is the biggest State-owned fuel retailer network, and the government plans to sell around 30 percent of the stake in China Sinopec by the end of 2014. Last year, China Sinopec reported a profit of $4.1 billion from its convenience stores and service stations.

According to people familiar with the matter, the deal was expected to attract less and less investors as 30 percent of the shares in a company do not give quite a controlling power to the stakeholders; however, the government offered an IPO within the next three years of the deal so as to give the investors a way out of the deal. This strategic step of the government has attracted many companies.

China Sinopec wants to expand its operations in others sectors of the market as well, such as advertising, financial and investment services, telematics and car services. The company is looking for a stakeholder who will be willing to invest in these expanded operations as well.

China Sinopec reported total revenues of 1.49 trillion Yuan for the year 2013. However, most of this revenue came from the fuel sector, for the sales in the non-fuel sector contributed to around 1% of the total revenues.

The companies involved in the deal refused to comment on the deal procedure and the expected suitors.

Sources have it that all the companies will enter their final bids by the end of August. Nonetheless, it is not confirmed yet as to which shortlisted companies will be making offers. Rumors have it that ENN Energy Holdings Ltd (HKG:2688), Hopu Investment Management and Alimentation Couche-Tard Inc (TSE:ATDb) will be making bids as solo companies.

The chairman of China Sinopec, Fu Chengyu, said that the domestic companies will be given a preference over foreign companies due to the rules of government that state that dividend derived from China’s growth should be distributed among the Chinese investors.

According to the sources, a sale of 30 percent of China Sinopec stakes would generate around $16 to $20 billion for the company. Sinopec is expected to use the money in order to pay off some of its debts.

Moreover, according to Reuter’s calculations, the company is worth $53 to $66 billion, and the deal of 30 percent of its stakes would bring the price to earnings ratio to 13 to 16.3.

China Sinopec had disclosed its restructuring plans back in February. These plans also include the restructuring of oil pipelines and storage facilities all around the country of China.

Deutsche Bank (NYSE:DB), China International Capital Corporation, Bank of America (NYSE:BAC) and CITIC Securities Ltd (SHA:600030) are the advisors of China Sinopec.