China Gas Holdings Ltd. (384), set to buy Fortune Oil (FTO) Plc’s Chinese natural gas operations for $400 million, said it has enough cash to fund the transaction and is looking for more acquisitions.
China Gas, which supplies natural gas to 172 Chinese cities, holds more than HK$5 billion ($645 million) in cash and won’t have to sell shares or debt, Chief Financial Officer Eric Leung said yesterday in an interview. Fortune Oil will receive $200 million in cash and either a $200 million deferred payment or 250 million shares of China Gas, the Hong Kong-based company said yesterday in a statement.
Buying Fortune Oil’s assets will give China Gas pipelines across Beijing, Tianjin, Chongqing and seven Chinese provinces, a coal bed methane block in Shanxi and compressed and liquefied natural gas operations. Much of Fortune Oil’s network covers areas where China Gas has no presence.
“The deal greatly expands our networks across the country, and bring us upstream assets that can be used to feed our customers,” Leung said. “It’s just the beginning of a trend and we are looking to acquire more city gas assets when opportunities emerge.”
Fortune Oil surged 18 percent, the biggest one-day jump in almost two years, to close at 10.75 pence in London yesterday, the highest close since April 26. China Gas was suspended from trading in Hong Kong yesterday and will resume today, according to a separate statement today.
The deferred amount of $200 million will earn an annual interest of 6 percent from the date the transaction is completed, Fortune Oil said yesterday. Fortune Oil had a 181 million pound ($293 million) market value as of Dec. 14.
China Gas, which blocked a $2 billion bid from China Petroleum & Chemical Corp. (600028) and ENN Energy Holdings Ltd. (2688) with Fortune’s backing in October, is looking at acquisitions to expand after interim profit doubled, Chief Financial Officer Eric Leung said in a Bloomberg TV interview last month.
“This will be very good for China Gas,” said Yan Shi, an analyst at UOB-Kay Hian Ltd. in Shanghai. “They’re increasing their customer base and they’ve worked with Fortune Oil before to fend off the Sinopec takeover attempt, so it’ll be easy to integrate the businesses.”
China Gas has the support of its major shareholders, including China Petroleum, on the Fortune Oil deal, Leung said. China Petroleum has held discussions with China Gas several times in the past weeks to work out cooperation details, he said.
Fortune Oil had teamed up with investors including China Gas Founder Liu Minghui to buy China Gas shares at prices higher than the HK$3.50 Sinopec and ENN Energy offered in December 2011.
Fortune Oil and China Gas Group held 18.4 percent of the total issued shares in China Gas, the company said in its third- quarter statement on Nov. 19. It didn’t mention the stake owned by Minghui, who was reinstated as managing director on Aug. 20 after being arrested in December 2010 on suspicion of embezzling company assets.
“Fortune Oil will continue to have access, through its shareholding in China Gas, into the fastest growing natural gas market in the world with an even larger platform,” Fortune Chief Executive Officer Tee Kiam Poo said in the statement. “Together we aim to accelerate China Gas’s share of the China natural gas market.”
Wilmar International Ltd. (WIL), a Singapore-based edible oil refiner and processor, will transfer its 15 percent stake in Fortune’s gas unit to China Gas.
As part of the deal, Fortune Oil can nominate two directors to China Gas, including the managing director, the company said in the statement. The deal is subject to approval by shareholders of both companies and Chinese regulators. Fortune’s board said it would recommend shareholder approve the deal, according to the statement.
The money raised in the sale will be used to pay down Fortune Oil’s debt. BNP Paribas SA and Oriel Securities Ltd. advised Fortune Oil on the deal.
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