Privatization rumors lift Sinopec duo

Rumors swirling in the markets that Sinopec (0386) will privatize its two Hong Kong-listed arms, Shanghai Petrochemical (0338) and Yizheng Chemical (1033), again boosted the shares of the subsidiaries.

Shares of Yizheng Chemical soared 25.95 percent to close yesterday at HK$3.33, while its Shanghai-listed A shares rose 5 percent to 11.12 yuan (HK$11.49). Shanghai Petrochemical's shares surged 7.71 percent to close at HK$4.33 while its yuan-denominated A shares closed at 14.02 yuan on the Shanghai bourse.

In separate statements, Yizheng Chemical and Shanghai Petrochemical said management was "not aware of any reasons" for the share-price rally.

DBS Vickers analyst Gideon Lo said regardless of speculation, privatization will not take place this year.

Shares of both Yizheng Chemical and Shanghai Petrochemical hit a record high of HK$4.91 and HK$5.94 on May 14 respectively, also on speculation that Sinopec was set to take them private. But since then, the stocks have tanked 46.7 percent and 32.3 percent, respectively, before rebounding yesterday. The bounce-back was largely because the stocks were over-bought, analysts believe.

"The current valuations are too high [for privatization], also the huge divergence between the A-share and H-share price will make privatization more difficult," Lo said.

He added that if privatization were to occur, the process will involve A shares and H shares simultaneously.

Lo does not expect any big moves soon, considering Su Shulin has just been named chairman, replacing Chen Tonghai, who resigned in June, citing personal reasons.

Over the past few years, Sinopec has bought out several listed units, including mainland-listed Sinopec Qilu Petrochemical, Sinopec Zhongyuan Petroleum, Sinopec Shengli Oil Field Dynamic Group and Sinopec Yangzi Petrochemical.