GAIL to Divest Stake in China Gas

GAIL India is planning a partial divestment of its current 4.6% stake in the Hong-Kong listed gas distribution company – China Gas Holdings.

GAIL had acquired a 9% stake in the Chinese city gas distributor company for a total of R137 Cr by subscribing into 21 Cr shares of the company in 2005. The conditions of the agreement included that China Gas will ensure that GAIL's stake is not diluted to less than 6 % by any future issue of shares, GAIL too will not sell the shares for two years.

In 2006, the Chinese firm was planning to bring in new strategic investors, had made an offer to GAIL to subscribe to its new shares. However GAIL declined the offer and its stake was diluted to the threshold of 6% and today it owns a 4.6% stake.

GAIL India plans to keep a small strategic interest in the company that will help it retain its board position in China Gas. GAIL had picked up equity in the company as China was keen to replicate Delhi's success in using natural gas as a vehicular and domestic fuel in its cities, primarily Beijing, before the 2008 Olympics. Since now the distribution being pursued by GAIL's wholly owned subsidiary, GAIL Gas, the company feels the continuation of investment in China Gas does not appear to meet the original objective.

China Gas has exclusive rights to set up gas distribution projects in 42 cities in China. It engages principally in the investment, operation and management of city gas pipeline infrastructure, distribution of natural gas and LPG to residential, commercial and industrial users, construction and operation of oil stations and gas stations, and development and application of natural gas and LPG related technologies in China.

China Gas has a 30-year exclusivity period for its city gas operations in 172 cities across China andb has a 35,000-km gas pipeline network serving 7.8 million households and 49,000 factories and business.

Its other share holder include Beijing Enterprises Group (19.53 %), Sinopec (4.61 %), SK Group (17.25 %), China Gas Group (13.77 %), Liu Ming Hui (4.59 %), ADB (3.29 %) and Modarin (3.21 %).

GAIL had earned R16.29 Cr as dividend on its investment in China Gas over seven years and today its stake values at R800 Cr.

Last year GAIL was planning to buy a stake in Canadian - Canaport LNG unit put on sale by the Spanish firm Repsol and 10 Mn tonne LNG plant at Vladivostok on the Pacific coast in Russia.

(dealcurry.com, edited by Topco)