China Aviation buys 80% stake in Shenzhen oil storage facility

(2003-12-30)

Although the investment value is modest - $3.8 million for an 80 per cent stake in the Shuidong oil storage facility - it is significant as it gives China Aviation coverage in southern China.

Mainboard-listed China Aviation's other existing investment in China is in Shanghai. It has a one-third stake in Shanghai Pudong International Aviation Fuel Supply Company, which supplies jet fuel to Shanghai's Pudong airport.

China Aviation has been on the lookout for new oil-related investments and yesterday's announcement about the Shuidong purchase marks its first acquisition for this year.

There will be more such investments elsewhere in the future, said its managing director Chen Jiulin.

As for the Shuidong acquisition, it will pave the way for China Aviation to do more oil trading-related business in China, he said.

China Aviation bought its 80 per cent stake in Shuidong oil stage facility, which includes land totalling 76,730 sq metres, from Juzhengyuan Petrochemical Co.

The tank farm has total storage space of 50,000 cubic metres which can store jet fuel, gasoline and fuel oil.

Some of the jet fuel is supplied to Guangzhou's Baiyun airport, the country's third-largest, as well as to Zhuhai and Hong Kong airports.

For this year, the total stored volume reached at the storage facility was 650,000 cubic metres, giving it a turnover rate of some 13 times. The project's return on investment is an estimated 21 per cent, according to China Aviation.

Apart from storing its own products, China Aviation could lease the space to third parties.

It could also use the space to expand its trading business. For example, it could store petroleum products and sell them when prices rise, explained Mr Chen.

The vacant land near the tank farm will be used for future expansion, but that will depend on market demand, he added.

Juzhengyuan Petrochemical is the holder of a coveted oil licence, which Mr Chen noted would help expand China Aviation's trading business.

'There is scope for further cooperation,' he added.

China's oil demand is expected to grow an average 12 per cent annually over the next two decades.

By 2020, oil demand will reach 450 million tonnes, with the dependence on imports going up 65 per cent, from the current 30 per cent.

The Juzhengyuan acquisition marks the first time that China Aviation has a controlling stake in its investment. Its other major investment is a 5 per cent stake in Spanish fuel transport and logistics company, Compania Logistica de Hirocarburous.

Commenting on the latest investment, Mr Chen said: 'This investment is a prelude to additional investments in future. Currently, we have $350 million in investable funds at our disposal.

'However, when we evaluate an investment, we never rush into an agreement prematurely. Instead, we focus on the quality of the project concerned to enhance shareholder value.'

《The Business Times》

  

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