CR Gas to raise HK$5b in share placement to fund expansion

PUBLISHED : Wednesday, 15 September, 2010, 12:00am
UPDATED : Wednesday, 15 September, 2010, 12:00am

China Resources Gas Group (CR Gas), the natural gas distribution arm of state-backed conglomerate China Resources (Holdings), plans to issue up to HK$5 billion worth of shares to its parent and investors to pay for acquisitions and fund projects.

CR Gas, which distributes natural gas and liquified petroleum gas in 32 cities in 11 provinces and one municipality, has agreed to buy nine gas projects from its parent for HK$2 billion. The price represents 1.36 times its net asset value of HK$1.47 billion assessed on June 30. China Resources paid HK$1.17 billion for the assets from 2007 to last year.

The parent has guaranteed a net profit of at least HK$100 million for this year. It will pay CR Gas 20 times any shortfall between the actual and the guaranteed amount, up to HK$528 million - the difference between the projects' selling price and their combined net asset value.

The nine projects are located in Xiamen in Fujian, Ningbo in Zhejiang, Kunshan and Qidong in Jiangsu, Gucheng in Hebei, Tengzhou and Jining in Shandong, and Shifang and Suining in Sichuan province.

CR Gas said the deal 'is a step forward in further expanding its market share ... and strengthening its customer and earnings base into different regions in China'.

According to a terms sheet sent to fund managers, CR Gas is offering 230 million new shares at HK$10.75 to HK$10.95 each, representing a 3.4 to 5.2 per cent discount to its shares' last traded price of HK$11.34 before trading was suspended yesterday morning. This could raise up to HK$2.52 billion.

The deal's bookrunner, Credit Suisse, has the option of selling 50 million more new shares, depending on demand, potentially raising as much as HK$547.5 million.

The acquisition saw BOC International analyst Peter Yao Sheng raise his estimate on CR Gas' net profits by 10.9 to 14.5 per cent for this year, next year and 2012. He estimated its net profit would rise from HK$788 million this year to HK$1.27 billion next year and HK$1.54 billion in 2012.

Although the deal will enhance earnings per share by 15 per cent, since the nine projects' price-earnings multiple of 20 is lower than CR Gas' 23, Yao noted the two share issuances would dilute earnings by 29 per cent. The net effect is an 11.4 per cent earnings dilution. While this 'might lead to near-term [downward share] price pressure, we remain sanguine about the company's long-term geometrical earnings growth', he wrote.

CR Gas' share price has soared 64 per cent in the past year, compared with the Hang Seng Index's 4 per cent rise.

Spreading its wings

CR Gas is raising funds to expand its reach across the nation

The company has agreed to buy nine gas projects from its parent, China Resources (Holdings), for, in HK$: $2b