Engineering News

Sinopec to Privatize Zhenhai Refining
Sunday November 13, 7:00 pm ET

BEIJING--(BUSINESS WIRE)--Nov. 13, 2005--China Petroleum & Chemical Corporation, ("Sinopec Corp." or "the Company") (HKEX: 386; NYSE: SNP; LSE: SNP; CH: 600028), and Sinopec Zhenhai Refining & Chemical Company Limited ("ZRCC") (HKEX: 1128) held Board Meeting respectively and approved that Sinopec will privatize ZRCC through Ningbo Yonglian (Ningbo Yonglian, a wholly owned subsidiary of Sinopec Corp. established for the purpose of the merger) by way of "merger by absorption". According to merger agreement entered between Ningbo Yonglian and ZRCC, Ningbo Yonglian will pay the cancellation price per ZRCC H share at HK$10.60 in cash to the ZRCC H shareholders. Total consideration for the H shares approximates HK$7,672 million

Strategic Rationale for Sinopec Corp.

This transaction would contribute to the continued development of Sinopec Corp. It also demonstrates efforts of Sinopec Corp management to deliver their promises at IPO which include restructuring its assets in order to strengthen competence of its core business. From a long-term perspective, the transaction will have a positive impact on Sinopec Corp.'s profitability as well as shareholder value. Sinopec Corp. has identified a number of reasons for the benefits of the proposed merger:

1. Integration of ZRCC's oil refining business into Sinopec Corp.'s value chain. The proposed merger can reinforce the business value chain of ZRCC through the vertical integration of ZRCC's refining assets with the upstream refining operation of Sinopec Corp..

2. Synergy effects in capital allocation, investment, branding, resources, marketing, and distribution channels, etc. The proposed merger can consolidate Sinopec Corp.'s resources and realize potential synergies and enable Sinopec Corp. to improve the utilization of the capital resources by centralizing capital allocation and enhancing capital expenditure management.

3. Elimination of related party transactions and of intra-group competition.

4. Consolidation and simplification of management structure and efficiency improvement.

Reasonable Valuation: A Win-Win Transaction

The cancellation price of HK$10.60 per ZRCC H share is a reasonable price for both Sinopec Corp. and ZRCC.

To the shareholders of Sinopec Corp., as the implied P/E and the EV/EBITDA multiple based on the cancellation price for ZRCC is reasonable. Moreover Sinopec Corp. believes that the merger should have a positive impact on Sinopec Corp's profitability as well as shareholder value.

To the shareholders of ZRCC, the cancellation price of HK$10.60 represents a reasonable premium to the historical market price of ZRCC. It represents a premium of 12.17% over the closing price of HK$ 9.45 per share on November 2, 2005. It also represents a premium of 22.93% and 29.91% over the average closing price of HK$8.62 per share over the last month, and the average closing price of HK$8.16 per share over the last 12 months respectively. The proposal will offer them a unique opportunity to capitalize their entire investments in ZRCC.

Transaction Procedures

Total outstanding number of shares of ZRCC is 2,524 million. Of which, Sinopec Corp. holds 1,800 million shares, accounting for 71.32% stakes. The public holds 724million shares, accounting for the remaining 28.68% stake. This merger proposal will be implemented by way of "merger by absorption". First, Sinopec Corp. will set up a wholly-owned subsidiary, Ningbo Yonglian. Ningbo Yonglian will enter into a merger agreement with ZRCC. The completion of the merger will be subject to the approval by shareholders at the general and independent shareholder meetings. Ningbo Yonglian will pay the cancellation price in cash to the ZRCC H shareholders. At the same time, Ningbo Yonglian will also issue new registered capital to Sinopec Corp. before the completion of the merger. Finally, ZRCC will be delisted and eventually deregistered.

The proposed merger has received the approval from the Board and the Board of Independent Directors of Sinopec and ZRCC, However, the completion of the merger will still be subject to approval by the shareholders of ZRCC at the general and independent shareholder meetings and approval from the relevant regulatory authorities.

About Sinopec Corp.

Sinopec Corp. is the first Chinese company that has been listed in Hong Kong, New York, London and Shanghai. The Company is an integrated energy and chemical company with upstream, midstream and downstream operations. The principal operations of Sinopec Corp. and its subsidiaries include: exploring, developing, producing and trading crude oil and natural gas; processing crude oil into refined oil products; producing, trading, transporting, distributing and marketing refined oil products; and producing and distributing petrochemical products. Based on 2004 turnover, Sinopec Corp. is the largest listed company in China. The Company is one of the largest crude oil and petrochemical companies in China and Asia. It is also one of the largest gasoline, diesel and jet fuel and other major chemical products producers and distributors in China and Asia. Sinopec Corp. is the second largest crude oil and gas producer in China.

About Ningbo Yonglian

Ningbo Yonglian is a wholly-owned subsidiary of Sinopec Corp., which was established for the merger and carries no other business of its own.

About ZRCC

About ZRCC is a holding subsidiary of Sinopec Corp., which listed in HKSE in December, 1994. ZRCC boasting a comprehensive crude processing capacity of 18.5 million tpa, in which high-sulfur crude processing capacity of 12 million tpa and hydrogenation processing capacity of 14million tpa, is one of China's largest processing bases for crude, imported crude, sour crude and the largest export base for oil products. It is also an important crude distribution base. ZRCC has a PX production capacity of 650,000 tpa, and PP production capacity of 200,000 tpa. Especially, ZRCC is near to Ningbo Beilun natural harbor and maintains a crude deep-water port of 250 thousands tons.

Based on 2004 financial data, the turnover of ZRCC was RMB 41,900 million, and net profit RMB 2,613 million, earning per share (EPS) was RMB 1.04. As the end of 2004, total assets and net assets of ZRCC was 15,493 million and 11,414 million respectively, Net Assets per share was RMB 4.52.

Relevant merger cases by Sinopec Corp.

2002: merged Hebie Xinhua by way of assets and shares (A share) transfer.

2005: merged Beijing Yanhua (H share) by way of merge by absorption.

2005: merged Wuhan Phoenix by way of assets and shares (A share) transfer.

Notice: Sinopec Corp. will host a teleconference to discuss the Privatization on Monday, November 14, 2005, at 9:00a.m. Beijing time (1:00a.m. London time and 8:00p.m., November 13, 2005, New York time) at 852-2112-1333; access code: Sinopec call. A 24-hour replay will be available at 852-2112-1555; access code: 480941#. The teleconference will also be archived on www.sinopec.com.

For additional information about Sinopec Corp., please visit the Company's website at www.sinopec.com

Disclaimer

This press release distributed herewith includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that Sinopec Corp. expects or anticipates will or may occur in the future (including but not limited to projections, targets, estimates and business plans) are forward-looking statements. Sinopec Corp.'s actual results or development may differ materially from those indicated by these forward-looking statements as a results of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, market shares, competition, environmental risks, changes in legal, financial and regulatory frameworks, international economic and financial market conditions, political risks, project delay, project approval, cost estimates and other risks and factors beyond our control. In addition, Sinopec Corp. makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.

Source: Sinopec Corp

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