China Aviation Oil jumps over 4% on talks of potential merger between parent CNAF and mega refiner Sinopec

Shares of China Aviation Oil (CAO) surged by more than 4 per cent on Tuesday (Nov 4) morning following word of a merger between Sinopec, the largest oil refiner in China, and China National Aviation Fuel (CNAF).

As at 9.28 am, the counter reached S$1.61 on the Singapore Exchange, up by around 4.5 per cent. By 10.03 am, it had eased to S$1.58, still trading 3.9 per cent higher or S$0.06.

Sinopec is expected to absorb all of CNAF’s assets and operations, if the merger goes through, a source said, according to a Bloombergreport.

CNAF owns 51 per cent of CAO, and, on occasion, balances domestic supplies by importing or exporting cargoes via trading arms like the group.

CAO noted in an exchange filing that its controlling shareholder “will be undergoing a corporate restructuring with another corporate conglomerate”. The counter-party, however, was not named.

Negotiations are reportedly ongoing, with no guarantee that the deal will proceed, sources said.

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Singapore-listed CAO’s share price has been on a tear in the past half year, having surged over 80 per cent.

For the half year ended June, the company reported an 18 per cent higher profit of US$50 million on higher gross profit and associates’ share of results.

Earlier in October, DBS analyst Jason Sum restarted coverage of the stock. He set a target price for the counter of S$1.75, citing the normalisation of crude oil and jet fuel market structures, which is expected to lift trading profitability, as well as “persistent regional price differentials” that should continue to create arbitrage opportunities.

SEE ALSO

The core business of CAO is in jet fuel supply and trading and is the largest physical jet fuel buyer in the Asia Pacific and the key importer of jet fuel into China.

Sinopec is China’s biggest oil and petrochemical products supplier, and the largest refining company and the second largest chemical company in the world.

The Fortune 500 company’s Singapore interests include petrochemical trading, marine bunkering operations and the sale of refined and chemical products. It also operates petrol stations in Yishun and Bukit Timah.