China wasn’t supposed to have oil barons. Forget tycoons like John D Rockefeller or Ludvig Nobel. Instead, control of the country’s oil sector was entrusted to a small group of state-owned giants.
So how did the country end up with a Xue Guanglin? From limited origins just a few years ago, Dr Raymond Sit (as he’s called in English) has managed to carve out China’s largest privately-owned oil fief: Brightoil Petroleum Group. And he’s done it despite the virtual stranglehold of PetroChina, Sinopec, CNOOC and Sinochem on the sector. The feat saw Xue jump 185 places on last year’s Forbes China rich list to number 43 – with an estimated wealth of $1.8 billion.
Although parts of the oil industry have been nominally deregulated, in practice it’s difficult to be anything more than a bit player. The state-owned oil firms are famously jealous of their turf and permission to operate in such a sensitive sector has to come from the highest levels of government.
But for Xue, that’s exactly what made the oil business so appealing. “If you manage to get in there’s a barrier that makes it incredibly difficult for anyone else to enter,” he told Talents magazine.
Xue made his own breakthrough in 2006, when Brightoil became the only private firm with a licence to sell bunker fuel to ships in Chinese waters. Previously this niche market was the exclusive domain of PetroChina but the rise in Chinese shipping has made it into a fast-growing sector.
It took time for Xue to cash in on his ‘marine bunker’ licence. He needed funds to buy ships and build fuel depots, plus the all-important import permit allowing Brightoil to bring in fuel itself, rather than buy it from the state-owned majors (something he received in 2007).
But the business grew quickly, and by last year Brightoil had roughly a third of the market.
Just how Xue managed to win his official approvals isn’t clear, but at the very least it would have required impeccable government connections.
That’s not the only mystery in the Brightoil story. The former philosophy student keeps a very low profile, and little is known about how he got together the funds to get into oil trading after graduating from Nanjing University in 1992. That reputation for secrecy flourished when Xue used a ‘backdoor listing’ to get part of his company onto the Hong Kong bourse three years ago.
What’s happened since is better known. Xue’s purchase of a 67% stake in the failing garments firm First Sign International back in 2008 signalled the beginning of a major expansion. Through the Hong Kong vehicle (owned separately from ‘Shenzhen Brightoil’), Xue raised an estimated $375 million from shareholders – and arranged a credit line of $4 billion from major ‘policy bank’, China Development Bank.
The funds have been spent turning Brightoil into a force to be reckoned with. Although it hasn’t traditionally owned an ‘upstream’ oil supply, the firm has invested heavily in its own ships and depot infrastructure. And it’s managed to hire industry veterans to oversee its trading operations – including the former head of BP’s fuel oil desk (provoking a lawsuit from its British rival).
“Our senior management team is mostly from the largest international oil companies,” boasts Xue, “of which 70% are foreign professionals with decades of experience.”
Expansion overseas has been the other key ploy in Xue’s strategy for Brightoil. After success in Shenzhen he opened marine bunkering operations in Hong Kong, Singapore and Rotterdam. (Roughly half of the firm’s revenues were made outside of China last year).
“[Even] compared to [small] local state-owned enterprises… we lack many natural advantages and government support,” explains Xue, “It is very difficult for private enterprises to survive on the margins, so we’d better go out and compete internationally.”
Xue’s strategy has been to avoid open competition with the oil majors wherever possible. “In developing the company, Xue has put himself in the position to complement rather than replace, and to be affiliated to rather than jeopardise state-owned enterprises,” argues Talents magazine.
There are also plans to reduce reliance on oil trading operations alone, mainly by purchasing ‘upstream’ energy sources. The firm made its first foray into energy prospecting two years ago when it got permission to join PetroChina in developing a small natural gas deposit in Xinjiang. He says his ultimate goal is a licence to explore throughout China – something that would finally entitle him to the title of China’s first oil buccaneer.
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