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Sinopec Says ‘Not the Time’ to Discuss Higher China Gas Bid

China Gas Rebuffs $2 Billion Offer From Sinopec, ENN Energy
A worker at the China Petroleum & Chemical Corp. (Sinopec) Yanshan refinery in Beijing. Buying China Gas would put Sinopec, Asia’s biggest refiner, in more direct competition with PetroChina Co. in the nation’s natural gas market, an analyst said. Photographer: Nelson Ching/Bloomberg

Dec. 15 (Bloomberg) -- China Petroleum & Chemical Corp., Asia’s biggest refiner, said it’s “not the time” to talk about raising its joint HK$15.3 billion ($2 billion) bid with ENN Energy Holdings Ltd. for China Gas Holdings Ltd.

“We hope their board of directors can consider seriously” the HK$3.50 a share offer for the Hong Kong-based company that supplies gas to the mainland, Fu Chengyu, chairman of the state-owned company known as Sinopec, said in Beijing. China Gas, which yesterday rebuffed the Dec. 13 bid, closed at HK$3.38, 25 percent below the offer.

The rejection may open the way for a rival suitor seeking access to rising demand from China Gas’s 6.6 million residential customers and 41,981 industrial and commercial users in the world’s biggest energy user. The bid was made at a 25 percent premium to China Gas’s previous close.

“Sinopec and ENN will certainly consider raising the offered price if a bidding rival emerges in coming days, but the room for raising the price is limited,” said Shi Yan, a Shanghai-based analyst at UOB-Kay Hian Ltd. The bidders may not want to go beyond HK$4.60 a share, two times the price to book ratio, she said.

ENN fell 2.3 percent to HK$23.85, taking its decline since making the bid to 12 percent. Sinopec dropped 1.3 percent to HK$7.90. The benchmark Hang Seng Index declined 1.8 percent.

“Now is not the time to talk about this matter,” Fu said when asked if Sinopec and ENN will raise the bid.

Direct Competition

Buying China Gas would put Sinopec in more direct competition with PetroChina Co. in the natural gas market, Wu Fei, an analyst at Bocom International said in a report this week. PetroChina “monopolized” that market through its own production and its listed Kunlun Energy Co. unit, Wu said.

Sinopec’s 4.8 percent holding in China Gas “in some ways is a deterrent for other bidders, potentially PetroChina,” Michael Parker, an analyst at Sanford C. Bernstein & Co., said by phone from Hong Kong.

It’s “highly unlikely” state-owned companies would bid against each other given they are all controlled by the same state assets regulator, said Neil Beveridge, an energy analyst at Bernstein. Likely rivals are the non state-owned companies, he said.

“Once an offer is announced, it’s rare for other state-owned companies to be after the same assets,” Beveridge said. “Eventually they have to ask for approval from the same regulator.”

Stock Slump

Sinopec and ENN made the offer after China Gas’s stock slumped following the arrest of two senior executives for embezzlement in February. The target traded at a discount to its earnings forecasts relative to its peers because of the charges, Bocom’s Wu said.

The bid was priced at 11.29 times earnings before interest, tax, depreciation and amortization, compared with 10.95 times in 10 comparable deals, according to data compiled by Bloomberg.

The price was inline with Nomura Holdings Inc.’s target of HK$3.30 a share. The Japanese broker said in a Dec. 14 report that said there was a “possibility” that the target would seek a higher price.

China’s natural-gas consumption is forecast to increase as the government boosts the fuel’s share to 10 percent of total energy demand by 2020 from 4 percent in 2010.

Deal Funding

China Gas formed an independent board committee to examine the offer as well as appointing Macquarie Group Ltd. to advise on its defense. Citigroup Inc. was named adviser to the bidders, according to the statement. The bank is providing a so-called bridge loan to ENN.

ENN, the fourth-largest Hong Kong-listed gas supplier, will fund 55 percent of the deal, while Sinopec will cover the rest of the financing.

Two China Gas 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.

The company’s net income increased to HK$374 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.

To contact the reporters on this story: James Paton in Sydney at; Guo Aibing in Hong Kong at

To contact the editor responsible for this story: Andrew Hobbs at

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