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December 17, 2012 4:44 pm
China Gas will pay Fortune $200m in cash on completion of the deal and another $200m as a deferred amount, which Fortune said it could choose to receive in China Gas shares.
Fortune, which is listed in London but has its headquarters in Hong Kong, built up a sizeable natural gas business in China over the past five to six years by buying a number of municipal gas supply and distribution companies as well as coalbed methane production assets.
As part of this strategy it also invested in China Gas, one of the country’s largest natural gas operators. Fortune currently owns an 18.4 per cent interest, mostly through a joint venture it created with a former China Gas chief executive. The deal announced on Monday could leave it with a significantly expanded stake.
Tee Kiam Poon, Fortune’s chief executive, said it would give Fortune a bigger platform “into the fastest-growing natural gas market in the world”.
“Together we aim to accelerate China Gas’s share of the China natural gas market,” he said.
The company said it intends to be a long-term shareholder in China Gas to capitalise on the expected growth in gas consumption in China, the world’s largest energy consumer.
Under China’s latest five-year plan, the share of gas in the energy mix is forecast to rise from the current 3.9 per cent to 8.3 per cent by 2015. Beijing is seeking to boost the role of gas in electricity generation as it reduces its reliance on dirty coal-fired power stations.
Fortune said combining its natural gas business with China Gas would “create an enhanced gas supply platform” better able to benefit from China’s growing energy demands.
As well as its gas supply business and coalbed methane assets, Fortune Oil also retails compressed natural gas and liquefied natural gas for use in transport. Last year, its natural gas business generated revenues of £59m, pre-tax profit of £18m, and had gross assets of £168.8m.
China Gas, which is listed in Hong Kong, operates city gas pipelines and distributes gas and liquid petroleum gas to residential and commercial customers.
Bill Mok, Fortune’s chief financial officer, said the combined business would be able to supply gas to 200 towns and cities in China.
Fortune said it would use the proceeds to pay down net debt which, as of June 30, stood at £63.3m. It said after the deal it would have a “strengthened financial position and will look for energy-related investment opportunities”.
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