GAIL wants to sell its China Gas stake

Vol 16, PW 16 (07 Mar 13) Midstream & Downstream

GAIL expects to earn Rs1026cr ($209m) by selling its 4.6% stake in Hong Kong-listed China Gas Holdings, a CGD and LPG operator.

When contacted a GAIL source confirmed that the stake sale is under active consideration. GAIL's board is expected to approve the proposal at its next meeting in April.

After board approval GAIL will first offer its stake to other shareholders who hold more than 3% in China Gas. GAIL wants to sell its 210m shares at a premium to the traded market price.

Driving GAIL's exit is unhappiness with China Gas MD and president Liu Ming Hui, who returned to work in August 2012 after embezzlement charges against him were dropped. Hui and then executive president Huang Yong were arrested by the Chinese police in December 2010 but released in July 2012 for lack of evidence.

GAIL was also unhappy when Chinese companies ENN Energy and Sinopec made a hostile joint bid to acquire a controlling stake in China Gas in December 2011. Their attempt was blocked by China Gas promoters and the offer withdrawn in October 2012.

GAIL has earned only Rs16.29cr ($3.3m) as dividend on its investment in China Gas over seven years. As the current share price is more than HK$7, GAIL believes it is a good time to sell and re-invest the earnings from the stake sale in overseas upstream assets.

GAIL bought its stake in China Gas in 2005, spending Rs137cr ($25m) to acquire 210m shares at HK$1.158/share. Selling the stake now is likely to fetch a net gain of approximately Rs700cr ($142m) after taxes and expenses.