Chinese gas distributors pummelled by surprise Zhejiang price cap

Shares of mainland Chinese natural gas distributors fell sharply on news that the Zheijiang provincial government had announced a price cut for wholesale gas price and imposed a ceiling on end-user gas prices as part of wider measures to cut corporate costs amid an economic downturn.

A lack of clarity on how the measures may affect distributors’ profit margins and whether they will spread to other provinces saw investors dump distributors’ shares.

“Overall earnings impact [should be] limited given diversified locations [of the distributors’ projects],” Credit Suisse’s regional head of utilities research, Dave Dai, said in a note. “What may concern the market is whether more provinces will follow suit.”

ENN Energy closed the morning session 10.5 per cent lower at HK$42.20, compared with a 9.7 per cent fall for China Gas to HK$11.38 and a 7.2 per cent decline for China Resources Gas to HK$21.95.

The trio are among the mainland’s largest city-gas distributors.

The Zhejiang government held a press conference a week ago on its directive to cut an estimated 100 billion yuan (HK$120 billion) of corporate operating costs by slashing a wide array of taxes and fees, including labour social security charges, land-use taxes, ports, airport and toll road fees, and electricity and natural gas charges.

The current business tax paid by some companies will be replaced by value-added tax, resulting in 30 billion yuan of savings.

The measures will be implemented on May 1.