CDB, China Gas Power More Energy 中国企业持续进行能源并购交易 M&A
Just a week after Canada approved the $15 billion purchase of oil exploration firm Nexen (Toronto: NXY) to Chinese rival CNOOC (HKEx: 883; NYSE: CEO), we’re seeing a couple of interesting new M&A deals in the energy sector, one involving policy lender China Development Bank and the other from Hong Kong-listed China Gas (HKEx: 384). The common theme is that many Chinese energy investors are relatively flush with cash right now, and are looking for bargains in a global sector where asset prices have become depressed due to lingering effects of the global downturn. But that said, these 2 deals are both quite different, with the first most likely being driven at least partly by Beijing while the latter looks like a more traditional private sector deal.
Let’s start with China Development Bank, whose Hong Kong-listed unit, CDB International Investment (HKEx: 1062), is in talks to buy some or all of energy investment firm Gateway Energy & Resources. (company announcement) This deal looks slightly opportunistic, since Gateway had to abort previous plans for a Hong Kong IPO earlier this year due to weak market sentiment, and now appears to be turning to CDBII for a needed fund injection.
Beijing has made investment in global energy assets a top priority over the last 2 years, as it seeks to secure the necessary resources to feed its hungry economy. Against that backdrop, this kind of investment by a major policy lender like CDB seems at least partly designed to execute central government policy.
At the same time, however, CDBII is a listed company, which means it needs to earn profits. So I wouldn’t be surprised if this ended up being just a short term investment until Gateway can make another attempt at an IPO that would allow CDBII to sell either some or all of its stake into the offering.
This deal looks like a broader move by CDB into the energy sector, as the bank is also reportedly set to become Beijing’s main vehicle for bailing out the struggling solar panel making sector. Accordingly, we could see more of this kind of support for cash-challenged energy firms from CDB and its Hong Kong unit in the coming year.
Meantime, my attention was attracted to the China Gas deal largely because China Gas is the same company that itself was the target of a hostile takeover by state-run oil major Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP). That clumsy takeover attempt began about a year ago and dragged on until Sinopec finally formally abandoned the bid 2 months ago. (previous post)
Now it looks like we know why China Gas wanted to remain independent, as the company has just announced its own deal to purchase London-listed Fortune Oil (London: FTO) in a deal worth up to $400 million. (English article) The acquisition will give China Gas more natural gas pipeline networks in China, where it is already the largest private company in the high growth space. The deal doesn’t come as a total surprise, since the 2 companies already had a relationship through a joint venture formed last year.
Fortune Oil shares shot up 18 percent in Monday trade after the deal was announced, reflecting the premium that China Gas would pay for the firm. But before the deal’s announcement, Fortune’s stock had lost about a quarter of its value this year and was trading even lower in November before a recent rally. Even after the Monday jump, Fortune shares are still below their levels from the beginning of 2012, even as the broader London FTSE index is up about 6 percent for the year. Look for more similar opportunistic buying by both public and private sector Chinese companies into 2013, which will continue as long as valuations remain low for offshore companies looking for new funding sources.
Bottom line: New energy M&A by China Development Bank and China Gas are being driven by low valuations for global assets, with similar deals likely to continue into 2013.
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