Asia's largest oil refiner, Sinopec Corporation, has decided to join China's programme to convert non-tradable shares held by the state into free-floating shares tradable on the stock market. An insider says this decision is crucial to the development of China's stock market.
Our Shanghai correspondent Chen Simeng has the details.
Sinopec is the last major Chinese state-run firm to take part in a government reform launched in April 2005.
The programme is aimed at removing a 250-billion-US-dollar overhang of un-traded equity that has weighed on markets for years, while fostering a more viable and robust capital market.
Huang Guanhua is an analyst with ChinaAMC, one of the first national fund management firms in the country.
"Sinopec's announcement to join the share reform means a lot to the securities market. It shows the basic completion of China's share reform. This is because Sinopec itself is an indicative stock to the market. After the Bank of China listing, Sinopec still ranks second-largest in the Shanghai Stock Exchange Index. So the fluctuation of Sinopec will to some extent affect the main board."
Sinopec is the second-biggest blue chip listed on China's domestic stock markets after the Bank of China, accounting for some 12 percent of market capitalisation.
But the Sinopec's decision to join the state share reform plan now means that further corporate restructuring of the sprawling energy firm will have to wait.
Its top priority will be completing the reforms: a complex process that requires winning public shareholder approval through gifts of cash, shares and options.
Sinopec said on Monday that its Shanghai-listed shares would be suspended from trade while it finalises a plan to convert the state-held shares into a freely tradable form. State shares account for 71.2 percent of Sinopec's total outstanding shares of 86.7 billion.
Beyond the previous expectations in the market, Sinopec didn't restructure its units to make them private before the state-owned reform. Huang Guanhua has an explanation:
"I think the big shareholders of Sinopec must have their concerns. The share reform in CNPC was previously seen as something problematic, which Sinopec must take into consideration. As for its subsidiaries, strategically speaking, their integration will occur for sure -- only when and how remains uncertain."
Speculation has sporadically flared up that Sinopec would buy back subsidiaries Shanghai Petrochemical Company Limited -- China's largest integrated chemicals firm -- and Yizheng Chemical Fibre Company Limited, as it did with Zhenhai Refining.
For China Drive, I'm Chen Simeng; Chen Simeng, CRI News, Shanghai
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