Towngas plans long-term IPO for 'green' subsidiary

Energy business says it will consider listing for environmental firm when it contributes more than a third of total profits for the group

PUBLISHED : Monday, 08 October, 2012, 12:00am
UPDATED : Monday, 08 October, 2012, 2:55am


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Hong Kong and China Gas, better known as Towngas, will consider spinning off its non-city gas businesses in a separately listed unit in the medium term to better reflect their value.

But it will not retreat from non-core businesses despite concerns they may bring higher risks.

Towngas, the only distributor of piped gas in Hong Kong, might list ECO Environmental Investments when it reaches about 40 per cent of Towngas' total net profit, managing director Alfred Chan Wing-kin said.

ECO, set up in 2000, last year recorded a net profit of about HK$500 million, roughly 12 per cent of Towngas' net profit of HK$4.1 billion.

Chan said its contribution might rise to between 20 per cent and 25 per cent by 2016.

"A separate listing is possible when its contribution reaches a third to 40 per cent of total profit, but there is no such need at the moment and there is no timetable," he said.

Whether a separate listing would happen depended on its cost and benefit relative to alternative fundraising options such as a bond issue, which in turn was affected by a company's financial position and market conditions at the time, he added.

ECO operates a range of new energy ventures, in addition to aviation fuel storage and distribution and some conventional energy businesses such as coal mining, downstream chemicals production and an oil exploration and production business.

ECO's most mature and significant business is a 40-year franchise to supply aviation fuel to Hong Kong's airport.

Commencing operation in 2010, its eight storage tanks in Tuen Mun supply fuel via two undersea pipelines and has been making a profit of over HK$200 million a year.

In new-energy businesses, it has built facilities to process gases emitted from a landfill site in Ta Kwu Ling in the northeast New Territories and collect methane for use as feedstock for its gas manufacturing plant in Tai Po. Methane causes a greenhouse effect if not collected and burnt. Chan said that although landfill gas utilisation was more of a social responsibility project since it was not particularly profitable, Towngas planned to spend up to HK$400 million to build more processing and logistics facilities to collect methane from a landfill in Tseung Kwan O.

The facilities might come on stream in 2014, although a time frame has not been fixed. A similar project in Tuen Mun is also being planned.

Towngas is also engaged in various investigative projects in co-operation with mainland research institutions working on biofuel production technology that processes used cooking and industrial oil into clean fuel. Chan said it aimed to commercialise the processes within a year.

Towngas' moves into coal mining and its HK$1.4 billion acquisition in July of two oil production and exploration projects in Thailand have drawn criticism from analysts, who said they diverted the firm's attention away from its core gas supply business and raised its risk profile.

But Chan said upstream oil and gas and coal production would not be a major focus for the firm. "Our Hong Kong gas business is mature and there will be limit on the growth of our mainland city gas business in 10 to 20 years' time, so we need to find new growth spots by trying new things and grasping new opportunities," he said.