Macquarie inks China petrochemical deal

Macquarie Group has agreed to make a RMB271.25 million (€34 million; $44 million) investment in Hengyang Petrochemical Logistics, a company involved in the storage and transportation of liquid petrochemicals in China, through its Macquarie Everbright Greater China Infrastructure Fund, according to a Hengyang statement.

The full investment involves a RMB244.31 million equity investment in Hengyang itself, and a RMB26.94 million loan from the fund. The fund will have a 35 percent stake in Hengyang upon completion of the deal.

The proceeds of the investment will be used by Hengyang to buy back a 40 percent equity stake in two of its local subsidiaries in Wuhan and Chongqing, and to build new petrochemical jetties and storage facilities in those two subsidiaries and a third in Yueyang. Hengyang will also work on expanding one of its two existing plants in Jiangsu province.

Construction on the petrochemical plants and storage facilities is expected to be completed in the next one or two years and will increase Hengyang’s total storage capacity to 962,600 cubic metres – more than three times its current 265,600 cubic metre capacity.

Macquarie was drawn to invest in Hengyang because of the strategic position it has already built up within China, according to Ben Way, senior managing director of Macquarie Infrastructure and Real Assets. “The company’s storage terminals and shipping berths are situated in strategic locations along the Yangtze River, in close proximity to large-scale chemical and industrial parks,” he said.

Hengyang’s strategic locations along the Yangtze allow lower transport costs and take advantage of government regulations, concentrating petrochemical production in the region, he added. The river area accounts for approximately 70 percent of national chemical production and the majority of trade flow.

China is the world’s second-largest petrochemical producer, and its largest petrochemical importer, according to Way. The country is working to expand its production capacity over the next few years to reduce its reliance on imports, and Macquarie hopes its investment in Hengyang will allow the company to take advantage of that growth, Way said. Although the construction of new plants is short-term, Macquarie sees its investment in Hengyang as becoming a “long-term strategic shareholder”.

China’s infrastructure investment has historically come from the government, but an estimate based on the 12^th Five-Year Plan predicts that private capital will have to make up about one-third of the approximately $1.5 trillion needed, Way said.

The Macquarie Everbright Greater China Infrastructure Fund, jointly owned by Macquarie and financial services company China Everbright, closed last year on $870 million, well over its $750 million target. The fund’s strategy is to provide foreign investors with a way to invest in mature or expansion stage traditional infrastructure in China, Hong Kong, and Taiwan.