Beijing, People?s Republic of China (PRC) ? December 30, 2004 ? China Petroleum & Chemical Corporation, (Sinopec Corp.), Beijing Feitian Petrochemical Co., Ltd. (Beijing Feitian, a wholly owned subsidiary of Sinopec Corp. established for the merger), Beijing Yanhua Petrochemical Company Limited (Beijing Yanhua), jointly announced that on December 29, 2004, Beijing Feitian entered into a merger agreement with Beijing Yanhua, pursuant to which the Beijing Yanhua Directors agreed to put forward to the Beijing Yanhua Shareholders the Proposal regarding a proposed privatization of Beijing Yanhua by way of ?merger by absorption? under Article 184 of the PRC Company Law, which involves the cancellation of all the Beijing Yanhua shares. According to the Proposal, Beijing Feitian will pay the cancellation price per Beijing Yanhua H shares at HK$3.80 per share in cash to the Beijing Yanhua H shareholders. Total consideration for the H shares approximates HK$3,846 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 and benefits of the proposed merger:
1. The proposed merger can consolidate and strengthen the management of Sinopec Corp. and Beijing Yanhua. Beijing Yanhua?s petrochemical business will be consolidated into Sinopec Corp.?s integrated oil and petrochemical operation under a leaner and more efficient group structure, which will be beneficial for Sinopec Corp. to achieve business strategies and objectives for the group as a whole.
2. The proposed merger can reinforce the business value chain of Beijing Yanhua through the vertical integration of Beijing Yanhua's petrochemical assets with the upstream refining operation of Sinopec Corp.
3. The proposed merger can consolidate Sinopec Corp.?s resources and realize potential synergies. The merger will enable Sinopec Corp. to improve the utilization of the capital resources by centralizing capital allocation and enhancing capital expenditure management. After the proposed merger, Sinopec Corp. can leverage its brand name, marketing capabilities and distribution network to achieve economies of scale and reduce operation cost.
4. The merger can effectively eliminate intra-group competition. At present, both Sinopec Corp. and Beijing Yanhua are engaged in petrochemical business with similar products and competing sales channels. After the proposed merger, combined production and sales will effectively eliminate this intra-group competition.
Reasonable Valuation: A Win-Win Solution for Both Parties
The cancellation price of HK$3.80 per Beijing Yanhua H share is a reasonable price for both Sinopec Corp. and Beijing Yanhua.
To the shareholders of Sinopec Corp., as the implied P/E and the EV/EBITDA multiple based on the cancellation price for Beijing Yanhua is lower than the trading P/E and EV/EBITDA multiple of Sinopec Corp., the merger should be earnings accretive to Sinopec Corp. The cancellation price also represents a reasonable premium to the closing price as on December 21, 2004.
To the shareholders of Beijing Yanhua, the proposal will offer them a unique opportunity to capitalize their entire investments in Beijing Yanhua at a cash consideration which represents a premium over the prices of the Beijing Yanhua H shares.
Description of the Transaction
Total outstanding number of shares of Beijing Yanhua is 3,374 million. Of which, Sinopec Corp. holds 2,362 million shares, accounting for 70% stakes. The public holds 1,012 million shares, accounting for the remaining 30% stake. This merger proposal will be implemented by way of ?merger by absorption?. First, Sinopec Corp. will set up a wholly-owned subsidiary, Beijing Feitian. Beijing Feitian will enter into a merger agreement with Beijing Yanhua. The completion of the merger will be subject to the approval by shareholders at the general and independent shareholder meetings. Beijing Feitian will pay the cancellation price in cash to the Beijing Yanhua H shareholders. At the same time, Beijing Feitian will also issue new registered capital to Sinopec Corp. before the completion of the merger. Finally, Beijing Yanhua will be delisted and eventually deregistered.
At present, the proposed merger has received the approval of the Board of Beijing Feitian, the Board of Beijing Yanhua and the Board of independent directors. However, the completion of the merger will still be subject to the approval by shareholders of Beijing Yanhua at the general and independent shareholder meetings and the approvals from PRC regulatory bodies.
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 chemical products. Based on 2003 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.
About Beijing Feitian: Beijing Feitian, a wholly-owned subsidiary of Sinopec Corp., was established for the merger and carries no other business of its own.
About Beijing Yanhua: Beijing Yanhua was incorporated as a joint stock limited company in accordance with the PRC Company Law on April 23, 1997 pursuant to the reorganization of its predecessor. Beijing Yanhua's foreign shares (accounting for approximately 30% of the issued share capital of Beijing Yanhua) include Beijing Yanhua H shares listed on the Hong Kong Stock Exchange and Beijing Yanhua ADS?s listed on the New York Stock Exchange.
For additional information about Sinopec Corp., please visit the Company?s website at www.sinopec.com
Disclaimer: This presentation and the presentation materials distributed herewith include 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, exploration and development outcomes, estimates of proved reserves, 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.