They are offering HK$3.50 per China Gas share, or a 25 percent premium to the previous closing price, China Petroleum & Chemical Corp. (Sinopec Corp.) and privately controlled ENN said in a joint statement filed with the Hong Kong bourse on Tuesday.

But there is no guarantee that China Gas' board would accept the offer. China Gas said in a statement it had not held discussions with the acquirers on the terms of the proposed acquisitions.

"The unilateral announcement from China Gas may suggest that the offer from ENN Energy/Sinopec is a hostile takeover," Deutsche Bank said in a research note to clients.

A spokeswoman for China Gas said on Tuesday the company had no comment on the deal.

Sinopec now holds 4.8 percent of China Gas, while ENN does not hold a stake 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 declined to comment when contacted by Reuters.
 

State-run Sinopec Corp., China's second-largest oil and gas company and Asia's biggest refiner, and ENN said in the joint statement they "intend to further collaborate with the China Gas Group with a view to develop their respective China natural gas distribution market."

The transaction is consistent with Sinopec's overall business development strategy and Sinopec hopes to expand its supply of natural gas to end users as part of efforts to further integrate its business chain, it said.

Like its domestic peers PetroChina and CNOOC, Sinopec has been seeking to expand its natural gas businesses to meet surging Chinese demand.

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 meters (bcm) by 2020. Nearly a third of that will be imported. 

Sinopec Group, parent of Hong Kong and Shanghai-listed Sinopec Corp., on Monday agreed to increase its stake in the $20 billion Australia Pacific liquefied natural gas (LNG) joint venture to 25 percent and to buy more gas from the project.

The venture is just one project in a pipeline worth around $200 billion in Australia that could make the country the world's largest LNG exporter by the end of the decade as it scrambles to feed a growing Asian appetite for gas.
 

Shares of China Gas soared about 21 percent on Tuesday, while shares of ENN were down more than 5 percent. Shares of Sinopec slipped 1.1 percent in Hong Kong against a 0.9 percent drop in the benchmark Hang Seng Index. 

"It is absolutely a good deal for China Gas. With new and well known controlling shareholder Sinopec, its corporate governance will be stronger, and it will help lift investor confidence in the company," said Ben Kwong, Chief operating officer of KGI Asia.

The deal, which requires regulatory approvals, would also create synergy with ENN, which is also a city piped gas distributor in China, Kwong added. ENN had 100 piped gas projects in 15 provinces, regions and municipalities in China as at the end of June.

Some analysts said Sinopec and ENN might need to sweeten their offer because China Gas shares were still trading well below the price of a recent share offer by China Gas.

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. 

"These investors are unlikely to accept the general offer at HK$3.5, in our view," Piper Jaffray Asia Securities said in a note.

As of end-September, China Gas, with unaudited total assets of HK$31.4 billion and net assets of HK$18 billion, operated 151 piped gas projects and 9 long distance gas pipeline projects among many other energy projects in 20 Chinese provinces.

Its domestic rival includes Kunlun Energy Co. Ltd., which is controlled by PetroChina. 

Kunlun, which bought a 60 percent stake in PetroChina Beijing Gas Pipeline Co for 18.9 billion yuan ($2.97 billion) at the end of last year, sold 841.11 million cubic meters of gas in 2010, up 53 percent year on year.

After the China Gas deal, both Sinopec Corp. and ENN will hold a combined 75 percent stake in China Gas. The acquirers said they intend to maintain the listed status of China Gas.

ENN would finance 55 percent of the HK$16.7 billion offered to take over China Gas, while Sinopec will take up the rest.

Citigroup is the financial adviser to ENN Energy and Sinopec Corp.


Shares in China Gas had fallen sharply since late last year, when China Gas said Managing and Executive Director Liu Ming Hui and Executive President Huang Yong were detained by police in the southern Chinese city of Shenzhen for suspected "embezzlement of the assets of an organization in which they have duties".

But shares of the debt-laden company rose sharply in the past few months on speculation it is an M&A target. China Gas said last month that it had been approached by a potential investor interested in taking a substantial stake in the company.

China Gas expects its annual gas sales volume to almost double by 2015 and gas prices to increase, Joint Managing Director Eric Leung told Reuters in an interview in October.

The growth would be driven by the completion of China's new west-to-east natural gas pipeline, gas pipelines linking China with Kazakhstan and Myanmar, and several liquefied natural gas receiving terminals along China's coast, he said.