China Resources eyes seven city gas projects

PUBLISHED : Wednesday, 17 March, 2010, 12:00am
UPDATED : Wednesday, 17 March, 2010, 12:00am

China Resources Gas Group may spend between HK$1.5 billion and HK$2 billion buying up to seven city gas projects from its parent this year, as it unveiled a 62 per cent increase in annual profit.

The gas distribution unit of central government-owned conglomerate China Resources Group has 27 projects, after buying seven projects from its parent in 2008 and last year, as well as 13 from third parties last year.

It has spent a total of HK$4.6 billion so far on acquisitions.

Chief financial officer Ken Ong (pictured) said the company would consider raising bank loans and issuing new shares to finance this year's acquisitions, adding projects to be acquired must have an internal return rate of at least 15 per cent.

It had net debt of HK$504 million at the end of last year - the difference between HK$2.73 billion of total borrowings and HK$2.23 billion of cash. Net debt amounted to about a third of shareholders' equity.

'We have an internal guidance that our debt-equity ratio should not exceed 50 per cent, so we have plenty of room to take on more debt,' Ong said. He added that the company had set aside HK$800 million this year to build pipelines and other infrastructure.

Net profit of its gas operation last year rose 62 per cent to HK$421.6 million in 2008.

If 2008's profit is restated to allow for meaningful year-on-year comparison of its projects acquired last year, the profit growth would be 31.5 per cent.

Managing director Wang Chuandong said acquisition of projects has become more competitive as the sector saw brisk demand growth driven by government policies to boost clean fuel usage.

'But we have grabbed the market's largest four city gas projects last year, in Zhengzhou, Fuzhou, Chongqing and Nanchang, which reflects our competitiveness,' he said.

Wang expected CR Gas' sales growth to exceed 11 per cent this year from last year's 2.2 billion cubic metres. Total gas sales on the mainland grew 11 per cent to 87.5 billion cubic metres last year.

While the central government is expected to raise gas prices this year to bridge the gap between more expensive imported gas and cheaper domestic gas, Wang believes the government will not impose too sharp a rise that would substantially curtail demand growth.