UPDATE 3-China Gas rejects $2.2 bln Sinopec/ENN bid

Wed Dec 14, 2011 5:13pm GMT

Quotes

   

* China Gas says bid fails to reflect value of company

* Sinopec and ENN may raise offer-analysts

* China Gas hires Macquarie as an adviser

* Regulators could block deal on monopoly concerns

* Deal may set off new round of piped gas consolidation (Recasts with China Gas rejecting bid)

By Donny Kwok and Denny Thomas

HONG KONG, Dec 14 (Reuters) - China Gas Holdings on Wednesday rejected an unsolicited $2.2 billion cash bid from state energy giant Sinopec and ENN Energy , saying it failed to reflect the fundamental value of the company.

Analysts said earlier that Sinopec, seeking to expand its resources footprint, might need to sweeten its offer or go hostile but China Gas shares stayed just below the bid price on Wednesday, suggesting that a rival offer was unlikely.

However Deutsche Bank said in a note before the rejection of what was a rare unsolicited offer by a Chinese company that it could not rule out a higher bid for privately-held China Gas.

Piper Jaffray said in a research note earlier on Wednesday: "We don't rule out the possibility (of Sinopec) lifting the offer price."

China Gas, a Chinese city piped-gas distributor, said in a stock exchange filing the Sinopec-ENN bid was "wholly unsolicited" and "opportunistic."

It said it has hired Macquarie Group to advise on the deal, confirming a Reuters report earlier on Wednesday.

The offer may also face regulatory scrutiny over monopoly concerns in the piped gas sector in the event of further consolidation among operators.

If a deal was completed, ENN and China Gas would become the largest listed downstream gas utility in China with combined sales of more than 10 billion cubic metres per year, Piper Jaffray estimated.

SHARES MUTED

Sinopec , known officially as China Petroleum & Chemical Corp, and ENN Energy, another Chinese city piped-gas distributor, on Tuesday offered HK$3.50 per share for China Gas at a 25 percent premium to the previous closing price.

China Gas shares ended up slightly at HK$3.38 on Wednesday, after soaring more than 20 percent the previous day.

Sinopec spokesman Huang Wensheng in Beijing said the company had no talks with China Gas before launching the bid.

Sinopec, China's second-largest oil and gas company and Asia's largest refiner, now holds 4.8 percent of China Gas, while ENN has no shares in the company.

Other key shareholders of China Gas include SK Holdings Co Ltd, Gail India Ltd and Oman Oil Co.

Oman Oil and SK have declined to comment. China Gas officials declined to comment again on Wednesday.

Some analysts have said the offer needs to be sweetened because China Gas shares were still trading well below the price of a recent share offer it made.

China Gas issued 719 million new shares, 16 percent of its enlarged share capital, to the public in October 2010 at HK$4.31 per share, representing about a 54 percent premium over the current market price.

REGULATORY HURDLE

Even if China Gas accepts the offer there is a chance that Beijing may block the trade on anti-trust grounds, some analysts say.

But Credit Suisse said in a note that it believes the risk of regulators blocking the deal is low as China Gas and ENN would account for only 8 percent of total gas sales in China.

China International Capital Corp said the China Gas deal "indicates another round of consolidation may be under way in the gas distribution industry, which should help support the valuations of gas distributors."

In October, China Resources Gas Group Ltd said it would offer HK$795.13 million ($102.2 million) to take its 56.9 percent-owned unit, Zhengzhou China Resources Gas Co Ltd , private to reduce potential conflicts in allocating resources or investments and acquisitions.

Shares of other Chinese natural gas distributors listed in Hong Kong such as Chinese People Holdings Co Ltd, Towngas China Co Ltd and China Tian Lun Gas Holdings Limited were hardly changed or down slightly on Wednesday against a weaker broader market.

China, the world's top energy user, is keen to curb use of dirtier coal and will likely triple use of natural gas to about 300 billion cubic metres (bcm) by 2020. Nearly a third of that will be imported. (Additional reporting by James Pomfret in Hong Kong, Wan Xu in BEIJING, Cho Meeyoung in SEOUL and Saleh Al-Shaibany in MUSCAT; Writing by Charlie Zhu; Editing by Ken Wills and David Cowell)