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Eric Ng

US buyout firm Newbridge Capital has agreed to sell back to the controlling shareholder a 24.99 per cent stake in Xinjiang Guanghui LNG Development for US$45.96 million, after the gas distributor failed to secure supply to support expansion.

This development highlighted the operational risk faced by mainland distributors of natural gas, a resource in short supply in an industry where three state oil and gas firms dominate production.

Newbridge has decided to exercise an option to sell the stake back to Shanghai-listed gas distribution and property development firm Xinjiang Guanghui Industry, which owns 73.13 per cent of the liquefied natural gas development firm, the controlling shareholder said in a recent statement.

Newbridge bought the stake in September last year to tap into the mainland's nascent but fast-growing gas market, where demand is forecast to grow at least 15 per cent annually in the next few years.

Newbridge also had an option to raise its stake to 67 per cent by paying 1.35 billion yuan.

However, as the LNG development company failed to clinch a gas supply deal with China National Petroleum Corp, parent of listed PetroChina, it gave Newbridge the right to back out.

Failure to secure a supply deal to feed phase-two expansion of the distribution business within six months of Newbridge's acquisition had triggered the right to sell back the stake.

The LNG business recorded a net profit of 100.16 million yuan last year on turnover of 754.87 million yuan, and accounted for 40.06 per cent of Xinjiang Guanghui Industry's net profit that year.

Phase one of the business was backed by a 15-year gas supply agreement with PetroChina's Tuha oil and gas field.

Without access to long-distance pipelines, Xinjiang Guanghui has been supplying  LNG in liquefied form to small customers in distant locations, with transportation accounting for 40 per cent of total costs.



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