Beijing Enterprises' China Gas play may be nationwide expansion vehicle

Beijing Enterprises Holdings seeks to wield management control over the city-gas distributor after amassing a 22 per cent stake

PUBLISHED : Wednesday, 31 July, 2013, 12:00am
UPDATED : Wednesday, 31 July, 2013, 4:47am


Energy-to-brewery conglomerate Beijing Enterprises Holdings may use its China Gas unit as a vehicle for nationwide expansion in gas distribution, raising the risk of a boardroom clash over strategy, analysts say.

Beijing Enterprises Holdings (BJE) said yesterday that it had agreed to buy the 22.01 per cent stake held by parent company Beijing Enterprises Group (BJG) in city-gas distributor China Gas for HK$8.22 billion.

Although the ownership transfer from the parent to BJE does not immediately affect China Gas shareholders, the fact that BJE will own 22 per cent of the company - slightly more than China Gas chairman Liu Minghui's 21.12 per cent - could lead to changes in management at China Gas.

BJG's holding exceeded that of Liu earlier this month after it bought shares in the open market at HK$8.21 to HK$9 each.

Asked if BJE would seek to exert more management control over China Gas, chief financial officer Jimmy Tam Chun-fai told the South China Morning Post: "[BJE] will definitely demand more board seats and even some important positions."

BJG nominated Chen Xinguo to be a China Gas executive director in April. Chen is a former deputy general manager of Beijing Gas Holdings, the gas distribution subsidiary of BJE.

Tam said details about potential collaboration and "synergies" would be unveiled in a circular to independent shareholders in about 20 days.

He declined to comment on whether BJE might move its Beijing gas distribution business into China Gas, which has city-gas projects in 182 cities. China Gas would not comment on any potential co-operation with BJE and potential board member changes.

"BJE wants to expand outside its home market of Beijing, and China Gas provides an opportunity to become its gas distribution listed platform," said Standard Chartered analyst Evan Li.

China Gas provided a platform that would allow BJE to extend its natural gas business, BJE said in a statement.

BJE will pay HK$2 billion in cash and the remainder with 113 million new shares, or 8.8 per cent of its enlarged share capital. The deal will lift BJG's stake in BJE to 61.6 per cent from 57.9 per cent.

The related-entity transaction is subject to the approval of BJE's independent shareholders.

BJG began amassing its 22 per cent stake - 1.05 billion shares - in February last year. It bought its shares at an average of HK$4.54 each, according to Peter Yao Sheng, head of utilities and clean energy research at BOC International. By selling the shares at HK$7.80 each, BJG will reap a profit of HK$3.45 billion, or 71.8 per cent of what it invested.

Yao said he expected little increase in earnings per share for BJE from the deal, which would raise the company's future capital outlays because of China Gas' aggressive expansion in the city-gas and gas-refuelling-station businesses.

Shares in BJE slid 4.5 per cent yesterday to HK$52.85 while China Gas rose 1 per cent to HK$8.92. The benchmark Hang Seng Index edged up 0.5 per cent.