HONG KONG - Sinopec's hostile bid for China Gas Holdings Ltd. faced its latest test Monday, as a Beijing-government gas company ramped up its stake in the Hong Kong-listed gas distributor at a price exceeding the state-owned oil giant's $2.15 billion offer.
Beijing city government-owned Beijing Enterprises Group, the biggest gas distributor in China by sales, boosted its stake in China Gas, the country's third largest, to 12.65% according to a statement from the Hong Kong Securities and Futures Commission Monday. The gas distributor bought 161.80 million shares in China Gas on the open market, just two days after acquired a 5.4% stake in the Hong Kong-listed gas company from Oman Oil Co. S.A.O.C. and took its stake to 8.96%.
The two days of purchases by Beijing Enterprises, the parent of Hong Kong-listed utility Beijing Enterprises Holdings Ltd., could, if the gas distributor makes a formal bid, put China Gas in the unusual position of being the subject of a battle between two Chinese state-backed entities. Sinopec, or China Petroleum & Chemical Corp., has been diversifying beyond its hard-hit core business of oil refining, and is awaiting Chinese regulatory approval of a joint bid it made with ENN Energy Holdings Ltd, another Hong Kong-listed mainland gas distributor, for China Gas in December. Beijing Enterprises' acquisition of shares Monday at HK$4.10 represents a 17% premium to the price of $3.50 per share price jointly offered by Sinopec and ENN.
Beijing Enterprises declined to comment on the rationale of its increased stakes in China Gas, which controls gas pipelines that serve more than six million customers in China. China Gas management and shareholders have resisted what they say is an undervalued offer from Sinopec and ENN, and major shareholders London-listed Fortune Oil and South Korean conglomerate SK Group have increased their holdings to block the takeover.
China Gas shareholders have also argued that shares in the gas company were battered by the imprisonment of its co-founder and managing director on embezzlement charges when Sinopec and ENN made their offer. Liu Minghui is now out on bail and hasn't been charged in the case.
The prospect of a prolonged fight and a sweetened bid for China Gas, sent the gas company's shares up 3.9% to close at HK$4.05 on Monday, compared with a 2.61% decline in the benchmark Hang Seng Index. But analysts have questioned the ability of ENN, China's fourth-largest gas distributor, to finance a higher bid. ENN has postponed the date of its shareholders' meeting to vote on the deal to no later than May 31 from an original date of April 30.
In a note Monday, brokerage Jefferies said Beijing Enteprises may be raising its stake in China Gas so it can eventually help its partner PetroChina Co., another state-backed oil giant, in boosting its natural gas downstream portfolio at a time when the Chinese government is raising its investment in natural gas. Beijing Enterprises may also have set its sights set on China Gas should Sinopec and ENN drop out, because China Gas would be both a logical strategic and financial investment for the company, Jefferies added.
The deadline for negotiations between the consortium and China Gas has been postponed to July 6 from May 15, the second time the deadline has been extended.