Hong Kong-listed China Resources Gas Group announced yesterday it would buy Chinese gas distributor AEI China Gas for $237.7 million from a group of investors, including Goldman Sachs.
China Resources Gas is a unit of state-owned China Resources Holdings and it said in a statement that the deal will help it further expand its downstream city gas operations in the country. AEI China Gas, which mainly operates city gas pipelines has 28, city gas projects, eight gas stations and four midstream gas transmission pipeline projects in 11 provinces across China. China Resources Gas currently has 73 city gas projects in 16 provinces in China.
The deal underscores the view held by state companies that domestic gas prices will rise as China liberalises the sector and tries to reduce its reliance on coal.
"Energy is a key sector in China, and China has become of the world's top 10 countries in terms of natural gas consumption," said Clifford Chance Shanghai corporate partner Kelly Gregory. "We're likely to see continued investment and consolidation in this industry given China's determination to enhance 'cleaner' energy use through policy and regulation, and by developing infrastructure."
The acquisition of AEI China Gas implies more than 14 times the target company’s 2012 forecast earnings of Rmb106 million ($16.78 million), compared with CR shares’ historical price/earnings ratio of more than 20 times. The group will finance the payment using the proceeds from the recent issuance of senior notes by the company.
“The group has been active in seeking business opportunities to expand its core business of downstream city gas operation in the PRC. The acquisition is part of the on-going expansion strategy of the group with the aim of becoming the market leader in the downstream city gas industry in the foreseeable future,” said Wang Chuandong, managing director of China Resources Gas.
Morgan Stanley advised the seller, AEI China Gas, on the deal. Clifford Chance was the legal adviser to AEI.
