China Resources Gas raises HK$2.77b in share placement

CR Gas will likely use the money to acquire 16 city projects and capital expenditure

PUBLISHED : Wednesday, 21 November, 2012, 12:00am
UPDATED : Wednesday, 21 November, 2012, 1:56am

China Resources Gas, a mainland gas distributor, raised HK$2.77 billion in a share placement yesterday after its shares hit a record high.

Trading in the stock was suspended yesterday, pending the announcement of the placement. It closed at HK$18.46, the highest level since the firm joined the main board of the Hong Kong stock exchange through a back-door listing in the third quarter of 2008.

The company offered 160 million existing shares at between HK$16.95 and HK$17.35 apiece, a discount of between 6 per cent and 8.18 per cent to its last closing price.

After the placement, the firm will issue an equal number of new shares that its parent company, China Resources (Holdings), will acquire.

Analysts expect CR Gas to use the proceeds to fund its huge capital expenditure for the year, which includes the acquisition of 16 city gas projects from its parent, the acquisition of AEI Gas, the privatisation of Zhengzhou Gas and a proposed gas project in Tianjin that is pending approval.

The fifth and final round of acquisitions from its parent, which will amount to HK$2.4 billion, and other projects will cause a surge in capital expenditures to HK$9 billion this year, moving the company from a net cash position to a 70 per cent net debt to equity ratio, an e-mail from equity research firm BOCI Securities said yesterday.

After a huge negative free cash flow this year, CR Gas can achieve positive cash flow in the future, as there will be no more asset injections from the parent, BOCI said.

Capital expenditures would fall to an annual HK$6 billion from next year until 2015, the e-mail said.

Owing to its high valuation, 21 times projected price to earnings for this year, as opposed to the industry average of about 17 times, BOCI has a target price for CR Gas of HK$16.50, implying an 11 per cent downside.

For the first half to June, CR Gas posted a 28 per cent increase in net profit to HK$752 million. Organic growth of connection fees was 4.6 per cent year on year, while gas sales rose 16 per cent.

However, finance costs have almost tripled to HK$109 million from HK$40 million a year earlier.