China Petroleum & Chemical Corp. (386), which jointly bid for China Gas Holdings Ltd. with ENN Energy Holdings Ltd. (2688) for HK$15.3 billion ($2 billion), said the offer is “fair” and reflects the company’s value.
“We cannot pay a price that’s higher than market valuation,” Fu Chengyu, chairman of Sinopec, as China Petroleum is known, said in Hong Kong yesterday. “We are held responsible for our shareholders’ interests as well.”
China Gas, which supplies to 20 mainland provinces, rejected the HK$3.50-a-share bid in December, saying it’s opportunistic and fails to reflect the company’s value. Sinopec, expecting strong growth in its natural gas production in the years to come, is seeking direct access to end users, Fu told reporters at a briefing.
The acquisition would pit Sinopec against PetroChina Co. (857), which has “monopolized” the country’s gas-distribution market through its own production and its listed Kunlun Energy Co. unit, said Wu Fei, a Hong Kong-based analyst at Bocom International.
Buying China Gas, whose shareholders include SK Holdings Co. and Fortune Oil Plc, would give Sinopec and ENN access to its 6.6 million residential customers and 42,000 industrial and commercial users in the world’s second-biggest economy.
The bid proposed on Dec. 13 was at a premium of 25 percent to the closing price of HK$2.80 the day before. China Gas has advanced 33 percent since to HK$3.71 in Hong Kong as of 11:16 a.m. local time.
Sinopec and its parent China Petrochemical Corp. are ramping up domestic and overseas oil and gas production to counter losses from selling diesel and gasoline at state- mandated prices. Fu has led the companies to bid for $9.3 billion in overseas deals since he joined the group in April last year.
In November, Sinopec Group, as China Petrochemical is known, agreed to pay $5.2 billion for a stake in a unit of Galp Energia SGPS SA to explore for oil off the Brazilian coast.
Fu also bought Calgary-based explorer Daylight Energy Ltd. in December and a stake in five Devon Energy Corp. exploratory oil projects in the U.S. in January, building on the $8.8 billion purchase of Addax Petroleum Corp. in June 2009, China’s biggest overseas energy acquisition to date.
Before joining Sinopec, Fu masterminded $17.6 billion in global acquisitions at Cnooc Ltd. (883), China’s largest offshore energy explorer, even as his $18.5 billion bid for Unocal Corp. in 2005 failed after drawing political opposition in the U.S.
Sinopec has gained 15 percent in Hong Kong trading in the past year, compared with the 9.2 percent drop in the Hang Seng Index. The stock rose 0.7 percent to HK$8.83 as of 11:17 a.m.
Fourth-quarter profit at Sinopec slumped 23 percent to 11.8 billion yuan ($1.9 billion), missing estimates, as fuel-price increases in China last year lagged behind gains in global crude costs. Full-year net income rose 2 percent to 73.2 billion yuan, also less than expected by analysts.
Sinopec and ENN on March 19 extended the deadline for completing negotiations to May 15 from March 31, and ENN said it would dispatch a circular on the bid to its shareholders by April 30.
That followed from an earlier delay in February to circulate the notice. ENN, listed in Hong Kong, had said it needed more time to prepare the information and complete its 2011 earnings results. The stock rose 3.4 percent to HK$27.65 as of 11:18 a.m.
The delays are “extremely frustrating,” China Gas (384) President Eric Leung said on March 20. “This new timetable allows ENN and Sinopec five months to formalize an offer, and yet they still retain the right to extend this even further.”
China Gas said almost 4,000 employees signed letters opposing the offer. The workers are concerned the takeover may hurt the operations of the company and the development of the gas industry in China, according to a Feb. 3 filing to the Hong Kong stock exchange.
“I think many employees didn’t understand the situation, and many were affected by rumors that we may lay off workers,” Fu said. “If you check our records, we’ve never laid off workers after acquisitions. We develop our business through growth, not by laying off workers.”
Sinopec and ENN made the hostile approach after the target’s shares slumped following the arrest of two senior China Gas officials in December 2010 for suspected embezzlement. The mainland gas supplier subsequently removed the men from its board and dismissed one of them.
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