ENN, China Petroleum to Make Cash Offer for China Gas

(Corrects company name to China Petroleum in headline and first paragraph.)

ENN Energy Holdings Ltd. (2688) and China Petroleum & Chemical Corp. (600028) will make an all-cash buyout offer for China Gas Holdings Ltd. (384) as they seek to purchase a controlling stake, the target company said.

China Gas, a piped-gas supplier on the mainland, hasn’t yet held talks with the ENN-led group on the offer’s detailed terms, which weren’t included in two letters sent to the company, according to a Hong Kong stock exchange filing yesterday evening. China Gas will resume trading in Hong Kong today.

China Gas last month reported a fourfold increase 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 by as much as 52 percent this year. ENN, the fourth- largest Hong Kong-listed gas supplier, plans to expand its distribution network in the second-largest economy.

“The synergy is pretty good,” Michael Parker, a Hong Kong-based senior analyst at Sanford C. Bernstein & Co., said before the deal was announced. “There’s shared infrastructure that would benefit from having two franchises that are geographically close together.”

China Gas, which operates 151 city piped gas projects, said Nov. 14 an independent investor was keen to buy a “substantial stake” in the Hong Kong-based company. The distributor also runs 112 compressed natural gas filling stations and 44 liquefied petroleum gas distribution projects.

Embezzlement Woes

Two company 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 Nov. 11, Apple Daily said the former executives were out on bail. China Gas said Nov. 14 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. Chairwoman Cynthia Wong couldn’t be reached at her office by phone for comment Dec. 7.

The company’s net income increased to HK$374 million ($48 million) in the six months ended Sept. 30, from HK$93 million a year earlier, as demand from residential and industrial users rose, China Gas said Nov. 29.

The stock has pared its losses since falling to a low of HK$1.63 on Oct. 4, and is down 17 percent this year. It closed at HK$2.80 on Dec. 6, giving the company a market value of HK$12.3 billion.

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 Sept. 2. China Gas sells the fuel to 6.6 million residences and 41,981 industrial and commercial users.

ENN Shares

Shares of ENN have climbed 16 percent in Hong Kong this year compared with a 19 percent decline in the benchmark Hang Seng Index. The company had a market value of about HK$28.5 billion. The stock has been suspended since Dec. 6, and the company hasn’t yet published an announcement on the offer.

ENN, which changed its name on Sept. 22 last year, reported an 18 percent profit gain in the first six months to 628.8 million yuan ($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, Heibei and Inner Mongolia provinces in the six months ended June. 30.

The gas supplier had cash and cash equivalents of 5.7 billion yuan as of June. 30 and a total debt of 9.8 billion yuan, according to ENN Energy’s interim earnings report.

To contact the reporters on this story: Paul Gordon in Hong Kong at pgordon6@bloomberg.net; Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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