OREANDA-NEWS.  July 15, 2014. China Petroleum & Chemical Corporation ("Sinopec Corp." or the "Company") announced that following the reorganization of Sinopec Sales Co., Ltd. ("Sinopec Sales"), its wholly-owned subsidiary, external social and private capital will be introduced to Sinopec Sales through capital increase of Sinopec Sales (the "Capital Introduction").

The main objective of the Capital Introduction is to promote and optimize a modern enterprise system, improve its market-oriented operational system and management mechanism, facilitate business innovation and vitality, enhance the competitiveness and sustainability of the enterprise, promote the transformation of Sinopec Sales from a refined oil products supplier into an integrated services provider and develop Sinopec Sales into a comprehensive lifestyle services provider which is trusted by consumers and satisfies the needs of the general public. This is another milestone for Sinopec following its announcement in February to initiate the Capital Introduction and the completion in April of its marketing business reorganization.

Breakdown of Investment: To be Determined by Market Conditions

 Sinopec Sales has completed the relevant audits and valuations relating to the Capital Introduction. As of April 30, 2014, the company had total assets of RMB 341.76 billion. The final shareholding percentage to be subscribed by private investors in the Capital Introduction shall depend on market conditions, and the Chairman of Sinopec Corp. is authorized by the Board to determine investor selection, their respective shareholding percentage, the terms and conditions of their participation in the Capital Introduction as well as to coordinate implementation of the framework plan and relevant procedures provided that the shareholding percentage of private investors does not exceed 30% of Sinopec Sales' equity interest. The Capital Introduction will not be conducted by way of a public share offering, and the ultimate total number of investors in the Capital Introduction shall comply with the applicable laws and regulations.

Process of Capital Introduction: Two Phases with Multiple Selection Rounds

The process of Capital Introduction will be divided into two phases and will include multiple rounds of bidding and competitive negotiations. The Capital Introduction will be administered with impartiality, fairness and openness. Sinopec Corp. and Sinopec Sales will establish an independent committee composed of Sinopec's non-executive directors and outside supervisors, as well as internal and external experts who will be responsible for deciding the selection of the investors.

The first phase is the selection and identification of investors. Investors will be invited to participate in the Capital Introduction after submitting a letter of intent. Sinopec Corp. and Sinopec Sales will then identify potential investors based on their investment qualification and invited potential investors will be provided with an Information Memorandum and other materials that the Company deems helpful for the potential investor's investment decision. Potential investors are required to submit a non-binding offer and a binding offer during the process of the Capital Introduction. Sinopec Corp. and Sinopec Sales will select and identify the list of interested investors after the independent evaluation committee's review and screening.

The second phase is negotiation and completion. Sinopec Corp. and Sinopec Sales will negotiate conditional transaction documents with interested investors. Each party to the transaction shall complete its internal approval procedures and relevant external approval procedures in relation to the Capital Introduction (if required). Completion shall occur once all condition precedents are satisfied.

Investor Selection: Impartiality, Fairness and Openness

The Capital Introduction will be based on the principles of impartiality, fairness and openness. In line with the announcement, investors as well as their investment quota will be determined in a manner which balances several factors including: Potential investor's offer price and their respective proposed investment amount; potential investor's complementary strengths with Sinopec Sales and potential to become a future business partner with Sinopec Sales; place of registration of potential investor (domestic or overseas); benefits brought by potential investor to the general public of China; potential investor's industry standing, brand image and reputation, and financial strength; potential investor's intended holding period of Sinopec Sales' equity interests; and the potential investor's existing business or key investment areas shall not significantly conflict with the principal businesses of Sinopec Sales, Sinopec Corp., or Sinopec Group's main affiliates.

Business Outlook: Refined Oil Products to Integrated Services

Sinopec Sales is a leader in the domestic refined oil products sales market in China, and is able to generate strong earnings and a high return on assets. Sinopec Sales has the most comprehensive refined oil sales network and storage and transportation facilities in China. It is the largest provider of refined oil in terms of number of gas stations in China and the second largest in the world. As of the end of 2013, Sinopec Sales owned a total of 30,351 service stations and CNG/LNG stations under the Sinopec brand, among which 30,338 are self-operated. It had over 10,000 kilometers of refined oil pipeline and over 15 million cubic meters of storage space. In 2013, Sinopec Sales recorded a sales volume of 180 million tons of refined oil of which domestic sales topped 165 million, representing a 60% market share. Sinopec collectively issued 108 million gas cards to approximately 80 million gas card holders. Sinopec Sales recorded operating income of RMB 1,498.6 billion and net profit of RMB 25.1 billion in 2013. For the first four months of 2014, operating income was RMB 476.4 billion while net profit was RMB 7.7 billion.

Sinopec Sales' non-fuel business is growing rapidly and has huge potential for development. Having only formally launched the non-fuel segment as a core business line in 2008, it successfully recorded an operating income of RMB 1.1 billion in its first year. Since then, the non-fuel business has experienced rapid growth based on a national network. The non-fuel business is primarily comprised of the operation of convenience stores under the "EasyJoy" brand, an e-commerce business, car services and advertising. As of the end of 2013, Sinopec Sales owned 23,431 convenience stores. Revenue from the non-fuel business for the full year of 2013 and the first four months of 2014 were RMB 13.29 billion and RMB 4.76 billion, respectively.

Based on publically available information, on average the non-fuel business contributes half of the profit for gas stations in mature overseas markets. Of the 174,000 gas stations in the United States, approximately 120,000 (69%) are adjoined with convenience stores and are modelled on either a "gas station + convenience store" or "gas station + automobile services" structure. Oil products make up only 46% of total profit while the rest is derived from the non-fuel sector including convenience stores and fast food services. In the UK, convenience stores are an important part of gas stations, selling almost everything from daily necessities and food to newspapers and automobile products. Profit from convenience stores makes up 65%-70% of their total profit. Over 80% of European gas stations have convenience stores which account for approximately 60%-80% of total sales, and whose gross profit is around half of that of oil products.

Sinopec Sales aims to provide comprehensive and integrated services in the future. While still continuing to develop its refined oil product business, Sinopec Sales will leverage its existing platforms and expand into new businesses including convenience retailing, car services, telematics, O2O, financial services and advertising. Sinopec Sales aims to provide comprehensive and integrated services to build the trust of consumers and satisfy the needs of the general public as a lifestyle services provider.

Corporate Governance: Based on Market-Orientation Principles and Professionalism

Upon completion of the transaction, Sinopec will work with its partnering investors to improve Sinopec Sales' corporate governance mechanisms guided by the principles of professionalism and market-orientation. First, a diversified Board of Directors consisting of representative directors from social and private capital, independent directors and employee directors, in addition to directors designated by Sinopec Corp., will be established. The remuneration and appraisal committee, risk and strategy committee and audit committee will also be established under the Board of Directors in accordance with applicable laws and regulations. Sinopec Corp. will also facilitate Sinopec Sales to optimize its management structure and establish a specific performance appraisal system in order to develop a market-oriented, contract-guided and position-based human resources management mechanism, and to establish a market-oriented compensation system and a long-term incentive-based mechanism.

On February 19, 2014, Sinopec announced it would reorganize its marketing business based on the results of its audit and valuation, and would invite private capital to invest in its marketing business. The share held by private capital will be determined by the market conditions. In April 2014, Sinopec Corp. injected assets under its marketing and distribution segment into Sinopec Sales for management and control, and injected all assets and human resources of Sinopec's 31 provincial level branches, as well as those of Sinopec Fuel Oil Sales Co., Ltd, Sinopec (Hong Kong) Limited and Sinopec (Hong Kong) Aviation Co., Limited, into Sinopec Sales. On April 24, Sinopec appointed China International Capital Corporation Limited, Deutsche Bank, CITIC Securities and Bank of America Merrill Lynch as its financial advisors.

Sinopec is leading reforms through the reorganization of its marketing business. State, social and private capital participation is complementary and benefits the company's future development. Moreover, it will accelerate the professionalization of Sinopec. Under the supervision of investors and regulatory bodies, Sinopec will further improve corporate governance mechanisms, continue to explore new business models and enhance market-oriented operations.

Sinopec will comply with the disclosure requirements under the applicable laws and regulations based on the progress of this matter.