New Delhi: State-owned gas utility GAIL India Ltd plans to sell part of its 4.6 percent stake in Hong Kong-listed, city gas distribution firm, China Gas Holdings.
GAIL, which had in 2005 made a strategic investment of Rs 137 crore by acquiring 210 million shares of China Gas, will sell part of its holding this month, sources said.
The GAIL Board has accorded approval to partially divest the firm's equity stake in China Gas.
The gas utility however plans to keep a small strategic interest in the company that will help it retain its board position in China Gas, they said.
China Gas has exclusive rights to set up gas distribution projects in 42 cities in China. GAIL picked up equity in the company as China was keen to replicate Delhi's success in using natural gas as a vehicular and domestic fuel in its cities, primarily Beijing, before the 2008 Olympics.
GAIL saw synergies in city gas/CNG business.
But now that the city gas distribution (CGD) business is being pursued by GAIL's wholly owned subsidiary, GAIL Gas, the company feels the continuation of investment in China Gas does not appear to meet the original objective, sources said.
Also, China Gas shares are currently performing well on the Hong Kong Stock Exchange are hovering around Hong Kong Dollar 7-8, giving the company a market capitalisation of around USD 4.4 billion.
Sources said GAIL has earned only Rs 16.29 crore as dividend on its investment in China Gas over seven years. As the current share price is more than seven Hong Kong dollars, GAIL believes it is a good time to sell and re-invest the earnings from the stake sale in overseas upstream assets.
GAIL had in 2005 bought 210 million shares at Hong Kong Dollar 1.158 per share. Its 4.6 percent stake is Tuesday worth close to Rs 800 crore. If it were to sell of its sale, its net proceeds after taxes and expenses would be about Rs 700 crore.
China Gas has a 30-year exclusivity period for its city gas operations in 172 cities across China and boasts of a 35,000-km gas pipeline network serving 7.8 million households and 49,000 factories and business.
It also has eight LPG receiving terminals with a total 285,000 cubic meter storage capacity. Beijing Enterprises Group has 19.53 percent stake in China Gas and Sinopec 4.61 percent. Its other shareholders include SK Group (17.25 percent), China Gas Group (13.77 percent), Liu Ming Hui (4.59 percent), ADB (3.29 percent) and Modarin (3.21 percent).