Eric Leung's duties are not that different from many chief financial officers in China. As the big finance boss at China Gas, he shoulders his share of the burden of success like so many of his counterparts in this booming country.
"I have so many hats," said Leung on his duties at China Gas. "As CFO I need to be involved in financial management and control of the company and we have more than 180 project companies reporting back to me."
China Gas is a builder and provider of natural gas infrastructure and services in China. Founded in 2002 when the West-East Gas Pipeline was completed, the company has grown by approximately 20 to 25 new projects per year ever since; one project typically includes the tender to provide natural gas infrastructure and services to a city or mega-development. Today it controls more than 110 gas projects across China.
Monitoring the financial management of China Gas's project companies is not Leung's only hat. His other hats include raising the capital necessary to finance the company's rapid growth, investor relations, public relations and international business development that, for a company with operations only in China, is a surprisingly significant part of his job.
"When I joined the company, part of my financing programme was to invite strategic shareholders to come in with both their capital and their expertise," he said. Today China Gas has four strategic partners it has formed joint ventures with and with whom Leung works closely. They are: Sinopec (China Petroleum and Chemical Corporation), India's GAIL, Oman Oil and Korea's SK Energy.
"Natural gas was a new phenomenon at that time in China," explained Leung. "We decided that we also wanted to have someone else come in and help us grow because, frankly, the management had a lot of experience running businesses but not a lot of experience in this business."
He concluded: "Having capital was one thing but having strategic expertise was another."
Leung's job at China Gas has been far more than just bringing in strategic expertise, it has been about financing growth. Prior to joining the firm in 2005, he said the company had funded its growth through frequent, small-scale share placements, a practice he put an "immediate" stop to. Using his bank contacts, he turned to long-term debt markets to raise capital.
"Our concessions are for 30-years," said Leung. "With long-term debt we can pay back our loans over the lifetime of our concessions. I would never use short-term debt that you need to repay in one or two years."
Between its four strategic partners and long-term debt issuance, China Gas has successfully financed some phenomenal growth. The volume of natural gas the company handles has grown more than 10-fold -- from 176 million cubic metres in 2006 to 2.23 billion cubic metres in 2009.
Revenue over the same period increased from HK$630.5 million to HK$6.3 billion ($811.7 million) for the fiscal year ending March 31, 2009.
Throughout China Gas's rapid growth, cash management has not been a high priority to Leung. He said this is not because it lacked importance but, reiterating the sentiment of Asian Bamboo's CFO Peter Sjovall, because the high level of capital investment required to fund expansion did not afford him the luxury of letting money sit in the bank. But this is about to change.
In the next two years, the majority of China Gas's natural gas projects will begin production, transforming a company that until recently was largely an infrastructure developer into a gas supplier. "This coming five-years, as far as I'm concerned, is a honeymoon five-year plan," said Leung.
"We will be moving into a phase of organic growth where our capital expenditure will be much, much lower and the projects will be producing cash," he continued. "The next five-years will be characterised by less debt, more debt repayment and more cash in the bank."
How Leung manages that money once it hits China Gas's bank accounts has yet to be decided. "Definitely we will be thinking more about how we are going to manage this cash," he said. "We are in discussions with some banks about what kind of products they can offer us in a very safe manner. We want higher enhanced returns on our cash capital but in the safest manner possible."
As China Gas shifts into this new, more mature phase of its business, Leung acknowledges the changes and demonstrates that he is ready to don yet another hat -- that of cash manager.
