Shell To Sell 75% Stake in Chinese Tongyi Lubricants to Carlyle, Huo Group

HONG KONG— Carlyle Group LP agreed to buy a majority stake in a Chinese oil-lubricants business from Royal Dutch Shell PLC, giving the private-equity firm a rare deal for control of a company in China’s energy industry.

Shell, which is shedding assets across the globe amid low oil prices, said in a statement Friday it is focusing on its own lubricants brands within China. Shell didn’t disclose the price it accepted for the 75% stake in the Tongyi oil lubricants business from Carlyle and Huo’s Group, an entity controlled by Tongyi founder Huo Zhenxiang. Shell had purchased its stake in Tongyi from Mr. Huo in 2006.

The Wall Street Journal reported in December that Shell was shopping the asset, which had drawn interest from several global private-equity firms.

The sale by Shell comes as the company is rethinking its strategy in China. The oil giant has attempted to tap shale-gas reserves in western China, owns a stake in a south China petrochemicals facility and runs a chain of gas stations. The company is also exploring offshore reserves in the South China Sea.

But Shell has previously said it was scaling back investment in shale exploration in China’s Sichuan province following several years of expensive challenges. The company, which is in the process of acquiring British natural-gas company BG Group PLC for about $70 billion, has said it aims to sell some $15 billion in assets by the end of this year.

For Carlyle, the Tongyi deal represents a bet that demand for lubricants in China will continue growing. A rising middle class has shown robust demand for buying cars in recent years, despite a downshifting of the Chinese economy. Chinese gasoline demand has also risen briskly this year, reflecting growing demand for passenger vehicles.

“The lubricants industry is a growing market in China due to increasing auto penetration,” Carlyle Group managing director Herman Chang said in the statement.

Carlyle Group will own a majority stake in Tongyi after the deal closes, a Carlyle spokeswoman said. The parties said the transaction is expected to close by early next year.

Shell has been hard hit by slumping oil prices. The company said last month it planned to cut some 6,500 jobs across its operations—about 7% of its total workforce. Shell said second-quarter profit fell 33% from the same period last year, and has said it is preparing itself for an oil-price downturn that could last several years.