Towngas to spin-off business 'when time is ripe': CEO Peter Wong
Comment by firm's chief comes after utility Power Asset Holdings, controlled by Li Ka-shing, said last month it would sell its electricity arm
Hong Kong and China Gas, known as Towngas, will spin off its Hong Kong gas-distribution business into a separately listed company when the time is ripe, according to chief executive officer Peter Wong Wai-yee.
Wong's comments follow an announcement last month by Li Ka-shing-controlled utility Power Asset Holdings that will spin-off its local electricity distributor, Hong Kong Electric. Li is reportedly seeking to raise as much as US$5 billion. Wong said Towngas was in no hurry to spin off its division.
Wong, who took over as CEO in February, said the company's corporate structure was not suited to its long-term development.
"Our new city-gas projects on the mainland now are all located in suburban cities, with low capital needs. If we have to start a major project in Shanghai someday we might consider [a spin-off]."
Hong Kong and China Gas, through Hong Kong-listed Towngas, has 166 projects on the mainland. The Hong Kong gas business generates the bulk of its income. Earnings before interest, taxes, depreciation, and amortisation (ebitda), fell 1.3 per cent to HK$4.1 billion last year. That compares with a 9.8 per cent jump in ebitda of its mainland business.
Tycoon Lee Shau-kee's decision to sell his 1.6 per cent stake in Towngas to his flagship company, Henderson Properties - revealed in an exchange filing earlier this month - sparked concern that shares of public utilities were losing their attractiveness. Henderson already owns 42 per cent of Towngas.
Wong denied that the local business was losing steam.
"The era of double-digit growth for Hong Kong's energy sector is gone as industrial activity is not coming back," he said. "But the government's plan to build 470,000 new flats over the next decade will give us new momentum."
Towngas distributes gas to about 80 per cent of households in Hong Kong with the rest - mostly inhabitants of rural areas and occupiers of old tenements - still using electricity or liquefied petroleum gas for cooking and water heating. He expected urban renewal programmes would see these customers joining the gas distribution network over time. Towngas would add 15 city-gas projects and two more water projects to its network this year, he said.
"We tapped into the water business because there is a synergy with our gas segment because the two basically cover the same group of clients and the same government departments."
By the same rationale, the company also developed its telecommunication business - it saved time and money to lay transmission cables alongside gas pipes.
While the company only has five water projects now, Wong said they would be more aggressive when bidding for tenders.
"In 2005 and 2006, foreign firms paid very high prices for water projects in order to get into the China market, even though they were not profitable.
"Now that problems have surfaced and both the government and the foreign firms know such prices are unsustainable, it is time we made our move," he said.
Meanwhile, the company will continue to focus on city-gas distribution, which offers double-digit returns and will remain the group's bread-and-butter business.