Largest Shareholders Increase Stakes in China Gas
OREANDA-NEWS. March 21, 2013. The two largest shareholders in the natural gas distributor China Gas Holdings have quietly raised their stake in the company, a week after China Gas said it has been in advanced talks to sell a stake to China Petroleum & Chemical (Sinopec) and form joint ventures with it.
The motive for the pair, China Gas's managing director, Liu Minghui, and Beijing Enterprises Group, in increasing their stake in China Gas, the mainland's largest city-gas distributor by number of project concessions won, has not been made public.
But the action would help the two reduce the dilution effect on their stakes of a potential shares sale to Sinopec.
Beijing Enterprises Group and China Gas Group, a joint venture between Liu and the London-listed company Fortune Oil, each bought 75 million China Gas shares at HKD6.74 each on February 28, according to filings with the Hong Kong stock exchange.
The price was 10 per cent cheaper than China Gas's closing price on the day of HKD 7.55.
How the buyers amassed the shares was not disclosed, but they appeared to have bought them via a block trade from an investor owning less than a 5 per cent stake in China Gas. China Gas declined to comment.
Shareholders owning more than 5 per cent of a listed firm are required to disclose details of their trades if they resulted in their ownership crossing over a whole percentage number. No filing by any substantial China Gas shareholder on a sale of shares was seen on the exchange's website.
The purchases saw Liu's stake via his personal investment and the joint venture with Fortune rise to 22.15 per cent from 20.72 per cent, and that of Beijing Enterprises Group to 21.12 per cent from 20.3 per cent.
Fortune is controlled by Daniel Chiu Tat-jung, a son of the Hong Kong tycoon Deacon Chiu Te-ken. Last month it agreed to sell gas distribution assets to China Gas for USD400 million.
China Gas management told reporters late last month that the company was in advanced talks to sell more shares to its minority shareholder Sinopec, the nation's second largest oil and gas producer, which is keen to diversify downstream to city-gas distribution.
The two companies were also negotiating on setting up joint ventures to distribute liquefied petroleum gas (LPG) produced by Sinopec's oil refineries and sell compressed natural gas (CNG) at its petrol stations, China Gas said.
One analyst at a European brokerage said: "Given Sinopec's previous attempt to take over China Gas, my guess is that Sinopec is looking to take a major stake in China Gas. It could well result in Sinopec, Beijing Enterprises Group and Liu each having similar stakes, it is hard to tell who would emerge with the biggest stake."
Last year Sinopec launched a failed bid with China Gas's rival, ENN Energy, to buy out China Gas.
Beijing Enterprises Group, whose listed subsidiary Beijing Gas is the only natural gas distributor in the capital, saw investing in China Gas as a quick way to diversify away from its sole market.
China Gas's share price has risen 36 per cent so far this year, to close at HKD8.38 last Friday, more than double the rises of 15 to 17 per cent seen in the prices of ENN, Beijing Enterprises and China Resources Gas. Its share price rose to 25 times its earnings per share, also outstripping its rivals' 17 to 20 times price-earnings ratios.
Analysts were divided over whether any profit increment from the potential joint ventures with Sinopec justified China Gas's market premium.
Peter Yao Sheng, head of utilities and clean energy research at BOC International, who gave China Gas a valuation of up to HKD9.57 in a research note last week, said the backing of Beijing Enterprises Group and Sinopec could mean "the prospective room is huge regarding business opportunities and resource provision".
Michael Parker, a senior analyst at Sanford Bernstein, said the capital outlay and time to build a large enough network of compressed natural gas filling stations in large cities to entice private and commercial vehicles users to switch from petrol to CNG was huge.
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