China is poised to make its first takeover of a foreign oil company after oil trader Sinochem Corp. won court approval to buy South Korea's smallest refiner, Inchon Oil, for about US$549 million.

China, the world's second-biggest oil consumer after the United States, has been keen to buy overseas oil and gas assets to secure energy supplies for its fast-growing economy.

Inchon Oil is under court receivership in South Korea.

“The court approved the deal Thursday and they are scheduled to sign a final contract,” a South Korean judge said.

An Inchon spokesman declined to confirm a final deal would be signed, but Sinochem traders said they had started buying crude for Inchon ahead of the takeover.

Sinochem will pay about 630 billion won (US$549 million) for Inchon Oil, slightly lower than Sinochem’s offer of 644 billion won in a preliminary agreement signed four months ago.

Creditors of Inchon Oil, including Korea Development Bank, Kookmin Bank, Korea Exchange Bank and Shinhan Bank, are to review the deal.

Merrill Lynch said the acquisition price of around 600 billion won, which equated to around US$1,900 per barrel, was low compared to other refining assets in the region “due to the fact that Inchon has old and relatively simple refining assets.”

“We understand Sinochem may have to spend money to refurbish these assets,” the bank said in a research report.

Inchon's capacity utilization had been hovering at around 30 percent since it went bankrupt in 2002, but the rate was likely to increase once Sinochem assumes full ownership of the refinery in the first half of 2006, it said without giving further details.

China has made a series of investments in overseas oil assets, but this would mark its first outright acquisition of a foreign oil company.

Last month, China Aviation Oil, which has a near monopoly on importing jet fuel into China, agreed to buy into Singapore Petroleum to tap China's surging demand for oil.

(Shenzhen Daily September 28, 2004)