China Gas set to take over rival Zhongyu

China Gas Holdings is set to make an offer to take over smaller rival Zhongyu Gas Holdings in the latest consolidation of the mainland's natural gas distribution market.

The stake to be acquired is expected to exceed the 30 per cent threshold under the Hong Kong Code on Takeovers and Mergers, which means China Gas will have to offer to buy out all other Zhongyu shareholders on the same terms, people familiar with the deal said, adding an announcement is expected in about three days.

Spokesmen of both companies declined to comment.

China Gas told the stock exchange that trading of its shares was suspended yesterday pending announcement of an offer to buy a listed company in Hong Kong.

Zhongyu's market capitalisation stood at HK$1.73 billion before yesterday's suspension of its shares, which last traded at 89 HK cents. It gained 107 per cent in the past 12 months. It said it would release an announcement as required under the takeover code.

Zhongyu builds gas pipelines and sells piped gas to industrial and residential users. It also sells compressed natural gas to vehicle owners through filling stations.

It secured rights to operate gas distribution projects exclusively in eight cities in Henan province and three cities in Shandong province.

It also has eight exploration projects in Henan for natural gas trapped between coal seams.

The potential acquisition of Zhongyu will add to China Gas' existing portfolio of gas distribution projects in 114 cities.

China Gas in the middle of last year paid HK$369 million for a 49 per cent stake in a portfolio of piped gas projects spanning 28 cities from Hong Kong-listed Chinese People Holdings. Rival China Resources Gas Holdings last month announced it would buy a 25 per cent stake in Chongqing Gas for HK$1.32 billion, a month after it offered 760 million yuan (HK$864 million) for a 43.2 per cent stake of Zhengzhou Gas.

Core Pacific Yamaichi Securities analyst Lee Yuk-kei said the consolidation of Zhengzhou Gas and Zhongyu Gas by bigger rivals may be a sign that the Henan provincial government would like to see gas distribution projects in Henan operated by better funded companies to speed up project development.

China Gas' profit was HK$236.06 million in last year's first-half, up 29 per cent year-on-year, as turnover jumped 138 per cent to HK$3.93 billion. Zhongyu's profit was HK$17.41 million in last year's first nine months, up 70 per cent year-on-year, as turnover rose by a quarter to HK$543.78 million.

Big return

In the past 12 months, Zhongyu's share price rose: 107%