Panva will issue approximately 773 million new shares to Towngas at a price of HK$4.18 ($0.54) per share, representing 45% of PanvaÆs enlarged share capital. Consequently, Towngas will become the largest shareholder in Panva.
Panva will also take over HK$568 million of shareholder loans on the books of the target companies. HK$476.7 million of the loans are non-interest bearing while the rest carry interest of between 4.25%-5.85% per annum. HK$352 million of the loans have no definite repayment term while the rest are repayable between 2007 and 2016.
The parties have agreed a valuation of the target companies of HK$3.2 billion ($415 million).
Towngas managing director Alfred Chan Wing-kin, says: ôThe combination of our 45% stake in Panva and our directly-held piped gas operations improves our ability to capitalise on the rapid development of piped gas infrastructure on the Mainland.ö
Thomas Ou Yaping, chairman of Panva ,says: ôWith this acquisition, Panva will have a portfolio of 35 piped gas projects in 32 cities serving over 1.7 million users, with combined piped gas sales volume of 367 million cubic metres in the first half of 2006.ö
The price of HK$4.18 per share represents a premium of 5.56% over Panva's closing price on November 30 (the last trading day prior to the shares being suspended in anticipation of this announcement). A waiver was sought and received from the stock exchange for disclosing financial data of the target companies as it is unaudited. This data will be compiled in time and disclosed to shareholders.
The transaction is conditional upon various shareholder approvals. Panva is a listed company and Panva minority shareholders must approve a ôWhitewash Waiverö so that Towngas does not have to make a mandatory general offer to Panva shareholders. The waiver is being sought to enable Panva to remain a listed company meeting 25% minimum float requirements.
Further, Enerchina, which currently owns 60.42% of the share capital of Panva, will be diluted to 33.23% post transaction (without taking into account further dilution Enerchina will need to make to ensure minimum float requirements in Panva are maintained). Thus, the deal is resulting in Panva ceasing to be a subsidiary of Enerchina and is a substantial disposal for Enerchina. Enerchina shareholders consequently have to approve the transaction.
Enerchina is in the business of electricity generation and sales, and through Panva, sales and distribution of liquefied petroleum gas and piped gas, and gas pipelines construction. Sinolink Worldwide Holdings Ltd and Warburg Pincus are the major shareholders of Enerchina. (Warburg Pincus invested in Enerchina in 1995). Sinolink has agreed to vote in favour of the deal.
Value Partners, a fund with $3.7 billion of assets under management as at September 30, 2006, owns 10.68% of Panva. Holding Capital Group of the US and Whitney & Co are shareholders in Value Partners. Hutchison Whampoa had acquired a strategic minority stake in Panva in 2002 making it the second largest shareholder in Panva. However, it no longer appears as a shareholder in the stock exchange filing leading to speculation that the shareholding has been transferred to Value Partners. Value Partners will be diluted to 5.87% post the issuance of new shares to Towngas.
Through the deal, Panva aims to strengthen its position in China and to benefit from the 140 years of operating experience that Towngas has in the sector. On a combined basis, Towngas and Panva will have 60 projects spanning 55 cities and 12 provinces in China. The merged entity expects to be able to better capitalise on the rapid development of piped gas infrastructure in China. Towngas intends that Panva will be its future acquisition platform and that the two companies will coordinate future acquisitions.
After the deal, the board of Panva will comprise seven executive directors (four Towngas nominees and three Enerchina nominees), one non-executive director and three independent non-executive directors. Alfred Chan will become chairman of the Panva board. Other than the board reconstitution, Panva senior management will not change.
Morgan Stanley advised Towngas on the deal. Panva had no financial advisor and will shortly appoint one to advise its board.
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