Sinopec Plans Record Bond Sale for Gas Field, Plants

China Petroleum & Chemical Corp. plans the nation's biggest corporate bond sale as part of proposals to raise as much as 50 billion yuan ($6.7 billion) to finance gas and chemicals projects.

Asia's largest refiner, known as Sinopec, will ask shareholders to approve in November a 30 billion yuan bond that includes warrants convertible into stock, it said yesterday. A separate, 20 billion yuan sale cleared by investors will proceed, Sinopec said today.

China is encouraging companies to sell bonds to reduce reliance on bank loans and provide investors with an alternative to a stock market that has quadrupled in a year. Sinopec needs to fund a capital spending bill that's forecast to jump 38 percent this year as energy demand surges in the fastest-growing economy.

"Sinopec has many new projects coming up and the company has huge capital expenditure plans," said Grace Liu, an oil analyst at Guotai Junan Securities Hong Kong Ltd. "Selling bonds with warrants is a new way of financing and will help Sinopec meet its funding needs."

The government has approved 99.2 billion yuan of corporate bond sales this year. Companies also sold 211.9 billion yuan of commercial paper with maturities of one year or less in the first eight months, according to the central bank.

Share Market

Bonds still trail shares as a source of corporate fund raising. Companies generated 253 billion yuan by selling stock in the first half of 2007, according to the securities regulator. China's benchmark CSI 300 Index has gained fourfold in the past year, the best performance among 89 global benchmarks tracked by Bloomberg.

Sinopec's Shanghai-traded shares have more than doubled this year, making them the best-performing member of the 59-strong Bloomberg World Oil & Gas Index. The stock rose 3.1 percent to 18.95 yuan by 11:30 a.m. In Hong Kong, Sinopec gained 2.9 percent to HK$9.76 by the 12:30 p.m. midday break, headed for a record close.

Sinopec this month started building a pipeline to take gas from the Puguang field in southwestern China to Shanghai to meet rising demand for cleaner-burning fuels. The 1,700-kilometer (1,056-mile) link will cost 62.7 billion yuan.

Gas Reserves

Puguang held 356 billion cubic meters of gas reserves by the end of last year, Sinopec President Wang Tianpu said last month. The company may be able to increase the reserves by about 100 billion cubic meters a year, Chen Deming, vice chairman of the National Development and Reform Commission said Sept. 11.

Sinopec will also use proceeds from the 30 billion yuan bond sale to fund a 21 billion yuan ethylene plant in the northern city of Tianjin and a chemical plant in the eastern city of Zhenhai, it said in a statement to the Hong Kong stock exchange yesterday. Ethylene, produced from crude oil, is used in plastics.

"We decided to sell another 30 billion yuan of bonds to raise funds, in addition to the 20 billion yuan issuance approved by shareholders earlier," Huang Wensheng, Sinopec's Beijing- based spokesman, said by phone today.

A 30 billion yuan bond sale would be the largest transaction of its type not conducted by the government or a bank in China, Bloomberg data show. Sinopec projects 2007 capital spending at 110 billion yuan.

The company will issue 300 million six-year bonds incorporating warrants that can be converted into Shanghai-traded stock at a ratio of one share for every two warrants. Shareholders will be asked to approve the 30 billion yuan sale at an extraordinary general meeting on Nov. 15, Sinopec said yesterday.

Interbank Market

The plan to raise 20 billion yuan for Puguang will include selling 10 billion yuan of 10-year bonds and 10 billion yuan of five-year bonds for trading on the interbank bond market, Sinopec said, without saying what coupon the bonds will pay.

China in August issued rules allowing more listed companies to sell corporate bonds on a trial basis in an effort to encourage the growth of the local market for the securities.

Companies that have listed their shares on either the domestic or overseas exchanges can sell corporate debt, China Securities Regulatory Commission said in a statement posted on its Web site.

The National Development and Reform Commission's strict guidelines have meant approvals to be a qualified issuer were mostly restricted to major state-owned companies.

The new rules canceled a requirement for companies to seek bank guarantees for bonds they sell, which they had to do under previous regulations in effect since 1987. Issuer qualifications will now be based on credit ratings and certain financial ratios.