China Resources Gas Falls Most in Three Months After Announcing Share Sale

China Resources Gas Group Ltd. fell the most in more than three months in Hong Kong trading after saying it will buy a fuel supplier from its state-controlled parent for HK$2 billion ($257 million) in stock.

The shares dropped as much as 5.6 percent to HK$10.70 as trading resumed today. The stock closed at HK$10.78, down 4.9 percent, the biggest decline since June 1. The benchmark Hang Seng Index rose 0.1 percent.

China Resources Gas is expanding its mainland gas distribution business as demand for the cleaner-burning fuel surges. The company will issue 186.7 million shares to a unit of China Resources Holdings Co. for the purchase of Mega Fair Ltd. at HK$10.715 each, a 5.5 percent discount to the closing price on Sept. 13, according to a statement to the Hong Kong exchange.

“The shares were traded barely below the discounted price in the private placement this morning, which shows a lot of interest from potential buyers who cannot join the placement,” Peter Yao, an analyst at Bank of China Group Investment Ltd., said by telephone from Hong Kong. “A 5.5 percent discount is smaller than other stocks with the same liquidity.”

China, the world’s fastest-growing major economy, wants to triple the use of gas to about 10 percent of its energy consumption by 2020 to cut reliance on more polluting oil and coal. China Resources Gas reported a 75 percent jump in first- half profit after sales almost doubled by volume.

The fuel supplier will raise a net HK$2.46 billion through a placing of 230 million shares at HK$10.75 each to finance the acquisition of more city-gas distribution businesses in China, the company said in a statement to the stock exchange yesterday.

Mega Fair’s Assets

Mega Fair sells natural gas in nine Chinese cities, operates gas pipelines, and distributes bottled liquefied petroleum gas. China Resources Gas has gas distribution projects in 117 cities in mainland China. The 186.7 million shares will be issued to Powerfaith Enterprises Ltd., a unit of China Resources Holdings.

“We estimate contribution of 14 percent in 2010 earnings,” from the Mega Fair acquisition, UBS Securities Asia Ltd. analysts David Pow, Stephen Oldfield and Peng Yuxiao said in a research note. “We still believe the company is geared towards resilient growth with its parent’s support to facilitate acquisitions, but we think the share price has largely priced in the M&A driven growth.”

To contact the Bloomberg Staff on this story: Marco Lui in Hong Kong at mlui11@bloomberg.net; To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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