GAIL to buy 9% of China Gas for $31 mn
Reuters
Hong Kong, February 22
India's largest gas transporter, GAIL (India) Ltd will pay about HK$243 million ($31.2 million) in cash for a nine per cent stake in a Chinese city-gas distributor, marking the latest investment by a foreign firm in the country's small but fast-growing gas market.
Shares in Hong Kong-listed China Gas Holdings Ltd jumped to a 34-month high on Tuesday after the company said it would sell 210 million new shares to GAIL at HK$1.158 per share.
The price represents a 23.3 per cent discount to China Gas' close of HK$1.51 on February 18.
State-owned GAIL joins a spate of high-profile investors, including Italy's largest utility Enel and Hong Kong tycoon Li Ka-shing, to invest in the gas distribution business in China, which boasts up to 70 per cent margins on connection fees and over 30 per cent margins on gas sales.
Shares in China Gas, which resumed trading on Tuesday after a one-day suspension, rose to HK$1.57 before easing to HK$1.56, a rise of 3.3 per cent, in late morning trade.
"China Gas is a good concept stock backed by big energy firms, but investors should take note that the sector is very competitive and the stock has jumped a lot," said sales and research director at Tai Fook Securities Andrew To.
China Gas' shares have more than doubled in the past year and surged nearly 22 per cent in the past three months.
GAIL will not sell the shares within two years, China Gas said.
Proceeds from the deal will be used for working capital and for investment in natural gas projects, China Gas said.
China Gas also said it would set up an equal joint venture with the Indian firm for investing in natural gas and other energy related projects in China.
Earlier this year, China Gas inked preliminary agreements to sell up to 10 per cent stakes each to state-run Korea Gas Corp (KOGAS), and Singapore's City Gas Pte Ltd.
Coal-reliant China is encouraging the use of cleaner-burning gas to ease urban pollution.
China Gas, which entered the gas distribution business in 2002, is a relatively new player compared with Hong Kong and China Gas and Xinao Gas.
However, China Gas boasts mainland Chinese government backing, as it is partly owned by a unit under China's powerful State Council.
China's city gas business is mainly run by regional and local governments, and good government connections are seen as key to helping secure gas ventures in the country.
© HT Media Ltd. 2004.