Beijing group to tap gas works

Beijing Enterprises Holdings Ltd, an owner of shopping malls, toll roads and a brewery, agreed to buy the biggest supplier of piped gas in the Chinese capital for HK$11.6 billion (US$1.48 billion) to tap rising energy demand.

The city government-controlled company will buy Beijing Gas Group (BVI) Co from parent Beijing Enterprises Group (BVI) Co for HK$4 billion in cash and through the sale of shares, Beijing Enterprises Holdings said in a statement yesterday. Its shares closed at a nine-year high.

Chief Executive Officer Zhang Honghai wants to switch the firm's focus to gas and infrastructure, away from retail and tourism units. The gas supplier forecasts a 19 percent jump in the city's demand for the fuel this year as authorities promote cleaner-burning alternatives to coal before the 2008 Olympics.

"The pricing of the deal is very attractive," Zhang Wenxian, an analyst with Guotai Jun'an Securities HK Ltd, told Bloomberg News yesterday. "The injection of Beijing Gas will contribute to a significant increase in Beijing Enterprises' profitability over the long-run."

Beijing Enterprises will issue 411 million shares to Beijing Enterprises Group at HK$18.48 apiece, representing a 6.7 percent discount to the HK$19.8 closing price on April 3, the company said.

The shares rose 11 percent to HK$21.95 in Hong Kong yesterday, the highest since March 1998. The one-day gain was the largest since November 1998. The stock resumed trading yesterday after being halted on April 4.

Yesterday's announcement comes soon after Beijing increased prices of natural gas supplied to households by 7.9 percent.

Users started paying 2.05 yuan (27 US cents) a cubic meter on April 1.

"The Chinese government's decision to move toward higher energy prices and the nation's rising demand for natural gas will ensure a very good outlook for the acquisition," Guotai Jun'an's Zhang said.

The government will "gradually raise the price of natural gas in China over the long term," to boost energy efficiency and reflect rising costs, said Ma Kai, director of the National Development and Reform Commission.

Source:Shanghai Daily