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ENN Energy, Sinopec Make US$2b Cash Offer For China Gas
Bloomberg Top News | 16 December 2011
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ENN Energy Holdings and China Petroleum & Chemical Corporation offered HK$15.3 billion (US$2 billion) cash for China Gas Holdings to gain control of a fuel distribution network covering 20 provinces.

ENN and China Petroleum, known as Sinopec, bid HK$3.50 a share for the Hong Kong-based company that supplies piped-gas to the mainland, the companies said on 13 December in a statement. The offer is priced at 25% more than China Gas’s last close.

Buying China Gas will give the companies access to its 6.6 million residential customers and 41,981 industrial and commercial users in the world’s second-biggest economy. China Gas last month reported a fourfold gain in first-half profit and said it had been approached by an investor after the arrest of two senior executives caused the stock to slump this year.

“China Gas’s stock has been undervalued for a long while, so both investors are really getting on board at the right time,” said Shi Yan, a Shanghai-based analyst at UOB-Kay Hian. “ENN has always wanted to expand its utility network and Sinopec has been looking to diversify its business from over-reliance on refining.”

At one point on 13 December, China Gas gained 22% to HK$3.41 in Hong Kong. ENN rose 0.4% to HK$27.20 and Sinopec dropped 1.6%. The benchmark Hang Seng Index declined 1.1%.

ENN, the fourth-largest Hong Kong-listed gas supplier, will finance 55% of the deal as it plans to expand its distribution network. Sinopec will cover the rest of the financing, the statement said.

Deal Valuation

The offer is priced at 11.29 times earnings before interest, tax, depreciation and amortization, compared with 10.95 times in 10 comparable deals, according to data compiled by Bloomberg.

The bid follows China Petrochemical Corporation agreeing to invest an estimated US$1 billion to increase its stake in an Australian liquefied natural gas project led by ConocoPhillips and Origin Energy. It takes the number of energy deals by Chinese and Hong Kong-based companies to 279 this year worth US$43 billion, compared with last year’s record 367 deals worth US$59.6 billion, according to data compiled by Bloomberg.

China Gas said 14 November an independent investor was keen to buy a “substantial stake”. The distributor also runs 112 compressed natural gas filling stations and 44 liquefied petroleum gas distribution projects.

Citigroup Inc. was named adviser to the bidders, according to the statement.

Embezzlement

Two China Gas officials were detained by Shenzhen police last December for suspected embezzlement of assets. China Gas removed the men from its board and dismissed one of them.

On 11 November, Apple Daily said the former executives were out on bail. China Gas said 14 November it had received no confirmation on the reported release from mainland judicial authorities, and had instructed its lawyers to gather more information on the matter.

The company’s net income increased to HK$374 million in the six months ended 30 September, from HK$93 million a year earlier, as demand from residential and industrial users rose, China Gas said 29 November.

China Gas has pared its losses since falling to a low of HK$1.63 on 4 October. It closed at HK$2.80 on 6 December.

ENN, based in Hebei province in northern China, operates 100 city piped gas projects on the mainland, supplying 6.1 million households and 21,146 industrial and commercial users, according to its interim report released 2 September.

Forecast Consumption

China’s natural gas consumption is forecast to increase as the government boosts the fuel’s share to 10% of total energy demand by 2020 from 4% in 2010.

ENN, which changed its name on 22 September last year, reported an 18% profit gain in the first six months to Rmb628.8 million (US$99 million) after entering into 10 new piped-gas projects across eight provinces. The company also started 10 liquefied natural gas refueling stations for buses, trucks and ships in Guangdong, Zhejiang, Shandong, Hebei and Inner Mongolia provinces in the six months ended 30 June.

The gas supplier had cash and cash equivalents of Rmb5.7 billion as of 30 June and debt of Rmb9.8 billion, according to ENN Energy’s interim earnings report.


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