Originwater sells Yingde Gases stake to PAG, as private equity group homes in on full takeover

Transaction means PAG’s stake in Yingde has risen to at least 47.2pc, bringing it closer to the finishing line in protracted takeover battle for gas supplier

PUBLISHED : Monday, 13 March, 2017, 5:38pm
UPDATED : Monday, 13 March, 2017, 11:40pm

Beijing Originwater Technology, the sewage treatment company that last year was on the brink of taking over Yingde Gases Group, China’s third-largest industrial gases supplier, has sold its entire stake in the company to private equity firm PAG Asia Capital, according two financial executives familiar with the deal.

Originwater sold 79.67 million shares in Yingde at HK$6 (77 US cents) per share as a bloc transaction, representing its entire 4.2 per cent stake, the sewage company said on Monday in a filing with Shenzhen’s bourse. It did not reveal the identity of the buyer. But two people close to the deal said PAG Asia Capital is the buyer.

Originwater’s spokesman declined to comment.

PAG Asia Capital, whose HK$6 per share takeover offer for Yingde is the only binding one on the table, also declined to comment.

The transaction means PAG’s stake in Yingde has risen to at least 47.2 per cent, bringing it closer to the finishing line in the takeover battle. It needs more than 50 per cent to take full control.

PAG received a legally binding undertaking from Yingde’s founding shareholders Zhao Xiangti, Mark Sun Zhongguo and Trevor Strutt a fortnight ago to buy their combined 41.9 per cent stake in the business.

PAG previously owned 1.12 per cent of Yingde as of last Friday, when it made a filing to Hong Kong’s Securities and Futures Commission that it bought eight million shares last Friday at HK$6 each.

Yingde’s US-based rival Air Products late December indicated an interest in offering HK$5.50 to HK$6, but has yet to make a formal offer. It has been conducting due diligence since February 22.

During a contentious boardroom tussle among the three co-founders since late last year, Yingde proposed issuing the equivalent of 20 per cent of its shares to Originwater, in exchange for funding to help the gases supplier to steel and chemical makers to repay its borrowings.

The issuance would have made the sewage company the largest controlling shareholder in Yingde, acting in concert with the gas supplier’s former chairman Zhao.

Originwater’s financial controller He Yuanping was nominated as Yingde’s chief executive on November 5, the day Zhao mounted a boardroom coup against his two co-founders.

Three weeks later, he boasted during an investment forum that he had executed an acquisition and obtained control of Yingde in “the cheapest, quickest and easiest hostile takeover”, according to a video clip of his speech.

Through a series of complaints, court actions and requests for inquiry, Sun and Strutt – expelled from the board because of their opposition to Originwater’s investment – applied enough pressure on Yingde’s board to whittle the stock placement by half on December 18.

By January 11, the share issuance plan was abandoned by the board altogether.

Zhao announced on February 21 he would quit as Yingde’s chief executive but remain a non-executive director. He was expelled from the board in a March 8 Yingde shareholders meeting, while Sun and Strutt were retained as directors.

On Sunday, Sun was reappointed chairman and chief executive while Strutt resumed his chief operating officer position.