China Gas Rebuffs ENN Energy, Sinopec Offer as Opportunistic

China Gas Holdings Ltd. rebuffed a HK$15.3 billion ($2 billion) offer from China Petroleum & Chemical Corp. and ENN Energy Holdings Ltd., saying the bid is opportunistic and fails to reflect the company's value.

China Gas formed an independent committee of the board and named Macquarie Group Ltd. as a financial adviser on the offer, according to a filing with the Hong Kong stock exchange yesterday. China Gas called the Dec. 13 offer from ENN and the refiner known as Sinopec “wholly unsolicited.”

The two bid HK$3.50 a share for the Hong Kong-based company, which supplies piped gas to the mainland. Buying China Gas would give them access to its 6.6 million residential customers and 42,000 industrial and commercial users in the world's second-biggest economy.

The offer was 25 percent more than China Gas's closing price Dec. 12, and 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 stock has risen 21 percent since before the bid announcement, closing at HK$3.38 yesterday.

China Gas last month reported a fourfold gain in first-half profit and disclosed an approach from an investor, after the arrest of two senior executives dragged the stock down this year.

The bid follows China Petrochemical Corp.'s Dec. 12 accord to invest an estimated $1 billion to increase its stake in an Australian liquefied natural gas project led by ConocoPhillips and Origin Energy Ltd. It took the number of energy deals by Chinese and Hong Kong-based companies to 279 this year worth $43 billion, compared with last year's record 367 deals valued at $59.6 billion, according to data compiled by Bloomberg.

Bridge Loan

Citigroup Inc. is advising the bidders for China Gas. The bank is providing a so-called bridge loan to ENN, Sinopec and ENN said Dec. 13. A bridge loan is a short-term loan that is usually replaced by longer-term financing.

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. It dropped 7.6 percent to HK$24.40 in Hong Kong trading yesterday, its biggest decline since June 2, 2010.

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.

(businessweek.com, Edited by Topco)