- By: Cheryl
- 0 comment
Chinese oil giant Sinopec has won regulatory approval for its $900m bid for SA’s second-largest oil company, Chevron SA— but it could still be trumped by a rival bid from Chevron SA’s empowerment shareholders, who are backed by Glencore.
The Competition Tribunal on Friday gave the go-ahead to the Sinopec deal, after Sinopec agreed to a couple of extra conditions in response to complaints by Chevron SA’s branded marketers.
The 10 branded marketers, mini oil companies that control more than two-thirds of the fuel Chevron retails in SA, had complained at tribunal hearings that they had not been adequately consulted and were concerned about their future, especially given Sinopec’s ultimate intention to rebrand Chevron SA’s 885 Caltex filling stations.
The new conditions that have been agreed on aim to ensure Sinopec picks up some or all of the rebranding costs of the filling stations and does not change any contracts with the branded marketers to their detriment.
These conditions add to the far-reaching public interest conditions that Sinopec had already agreed with Economic Development Minister Ebrahim Patel, and have now been made conditions of the tribunal’s approval of the deal.
These include a commitment by Sinopec to invest R6bn in upgrading Chevron’s Cape Town refinery and a further R215m in a development fund to support small black owned suppliers, as well as an undertaking that Sinopec set up its regional head office in SA and maintain or increase local procurement and black empowerment ownership.
It is understood that the rival bidders would have to match all the conditions if they want to gain the approval of Patel and of the competition authorities for their deal.
The rival bid came about when Chevron SA’s 23% empowerment partner, a consortium led by Mashudu Ramano’s African Legend Investments, in September exercised its pre-emptive right to match the Sinopec offer, with financing from global oil trader Glencore. If Ramano’s consortium, Off The Shelf Investments Fifty-Six (OTS), succeeds in exercising its pre-emptive right, Glencore would in turn buy the Chevron SA stake off OTS.
Glencore was one of the original, unsuccessful bidders for the Chevron SA stake when US-based Chevron Global Energy put it up for sale
The OTS transaction was filed with the Competition Commission in early November, with an application from Glencore subsidiary Luxiano following in mid-November.
The commission has been investigating the OTS bid, separately from the Sinopec deal, but it is understood it has declined at this stage to investigate the Glencore-Luxiano leg of the deal. Glencore-Luxiano has made an exchangeable loan available to OTS, which would be converted to equity if that bid succeeds, putting Glencore-Luxiano in as the controlling shareholder of Chevron SA.
The Sinopec bid will simply fall away if OTS can match the extensive employment, investment and other public conditions and succeeds in rival bid.
Hong Kong-based Sinopec Corp is China’s largest petroleum refiner and the world’s second-largest petrochemicals company, and its bid for Chevron SA, which is worth a total of more than $1.5bn including the Cape Town refinery investment, is the largest ever by a Chinese company for a controlling stake in a South African company.
It came after US-based Chevron Global Energy put its 75% of Chevron SA up for sale late in 2016, as part of a restructuring that had already seen it exit nine other African countries. (Caltex SA, now Chevron SA, had historically been owned by Chevron and Texaco which merged in 2001.)
Extensive negotiations between Sinopec and Patel yielded a series of public interest conditions that the Economic Development Department said in January were “part of deeper and bolder economic inclusion measures”. Sinopec will increase the level of BEE ownership from 25% to 29% and has committed that no jobs will be lost as a result of the merger.
“It will ensure that it maintains a large presence, well above the industry average, of locally owned and operated service stations in SA.
“This will allow a broad-based South African benefit from the presence of the oil major in the South African economy,” the department said. Sinopec has also undertaken to increase exports of products from its South African refinery into its Chinese network.
In terms of the branded marketer programme, which is unique to Chevron Global Energy, the branded marketers, all of which are black-owned, market, wholesale and distribute fuel to 487 of Caltex’s 885 retail filing stations, in areas outside SA’s main centres, particularly in rural areas and small towns. Their 15-year contracts with Chevron SA still have another eight to nine years to run.
The Competition Tribunal said on Friday that the 10 branded markets had said at the tribunal’s public hearing that they were dissatisfied with the proposed conditions relating to them, as well as the lack of engagement between them and the merging parties about the proposed transaction and its potential effects on them.
“Subsequently the merging parties tendered further conditions relating to the post-merger engagement by Sinopec with the branded marketers in regard to any aspects of its evolving long-term strategy for Chevron SA that may affect the branded marketers. We have approved the proposed transaction subject to these conditions.”
The tribunal said Sinopec had undertaken to spend R299m to cover the full cost of rebranding 227 of the service stations and a further R25m to cover some of the costs of a further 254 stations that had not yet been upgraded to Chevron SA’s current standards.
-BDLive