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CNOOC plans Shanghai share sale amid U.S. sanctions

Target to raise $5.4 billion follows high oil price and profit surge

CNOOC plans to list on the Shanghai Stock Exchange amid U.S. sanctions.   © Reuters

HONG KONG -- CNOOC, one of the three Chinese state-owned oil and gas conglomerates, plans to list in the mainland amid pressure from U.S. authorities to delist from New York.

The company late on Sunday said it is set to issue up to 2.6 billion new shares, representing about 5.5% of the enlarged share capital and plans to raise 35 billion yuan ($5.4 billion). It intends to use the funds to develop oil and gas fields, primarily at ongoing projects in Guyana and the South China Sea.

The share sale could become the mainland's second biggest new listing this year, trailing China Telecom last month and ahead of China Three Gorges Renewables (Group) in June.

CNOOC shares rose 5.1% on Monday in Hong Kong, taking gains for the year to almost 20%. Shares of its two state-owned peers have also climbed in Shanghai, powered by the oil price rally. PetroChina has risen 50% and China Petroleum & Chemical, better known as Sinopec, 11% so far this year.

CNOOC in a statement said its board has resolved the issue of new yuan-denominated shares to be listed on the Shanghai Stock Exchange, pending approval from its existing shareholders and regulators. The company, already listed in Hong Kong, has called a shareholder vote for Oct. 26. It did not disclose the expected listing date.

Based on the Monday close in Hong Kong, the shares that are planned to be offered in Shanghai will be worth the equivalent of 21 billion yuan. However, the pricing mechanism in mainland China is structurally different from the rest of the world, including Hong Kong.

CNOOC's listing status on the New York Stock Exchange is currently under review. An executive order issued by then U.S. President Donald Trump late last year barred U.S. residents and corporations from investing in certain Chinese companies deemed to have links to the nation's military.

The three Chinese state-owned telecom operators, which were similarly blacklisted by Washington, were kicked out by the NYSE in May.

China Telecom went public in Shanghai last month, while China Mobile is preparing to follow suit by year-end, according to Chairman Yang Jie. China Unicom already has a subsidiary listed in Shanghai.

China Telecom shares closed at 4.31 yuan, 5% below the issue price, despite its state-owned parent's announcement on Tuesday that it would purchase 4 billion yuan worth of shares.

CNOOC in its Sunday statement did not comment on the NYSE delisting process. It said a mainland listing was about enabling the company to access the mainland capital market via equity financing, which will "broaden the Company's fundraising channels," among other stated reasons.

"Given CNOOC's ample cash position, capital-raising is likely not the sole purpose of this A-share listing," Toby Shek, an analyst at Citigroup in Hong Kong, said in an investor note on Monday. "We believe a key reason for the issuance is to broaden CNOOC's domestic investor to mitigate the impact of U.S. sanctions."

The company was sitting on 83.5 billion yuan in cash and short-term time deposits at the end of June, according to its filings.

China has played a decisive role in setting the stage for so-called homecoming listings. CNOOC, similar to China Mobile, is a so-called red chip company, a state-owned enterprise incorporated outside the mainland with a primary listing in Hong Kong. They have a different set of regulatory hurdles to overcome before making their way to the Shanghai exchange.

Xu Keqiang, CNOOC's CEO, told reporters during a midterm earnings call on Aug. 19 that his company's status as a red chip was a "policy restriction for us to list A-shares for the time being, and we are closely monitoring the change in policy."

Xu added then that if conditions are met he has a desire for the company to go public in the mainland "in order to reward domestic investors with our great performance."

Mainland Chinese investors are restricted from freely investing overseas, including in Hong Kong.

CNOOC reported a net profit of 33.3 billion yuan in the first six months of the year, a more than threefold jump from a year earlier thanks to surging oil prices.

Benchmark Brent crude oil futures are currently at $78 per barrel, up from below $30 in the early part of last year. Goldman Sachs on Sunday upgraded its year-end forecast to $90 from $80, citing a larger than expected current global oil supply-demand deficit.

CNOOC on Thursday also revealed that it has commenced production in a 100%-owned oil field on the Bohai Sea in northern China that is expected to reach peak daily production of 11,000 barrels of crude by next year.

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