Private Equity Buys Out Australian Gas Producer in China
(AFR) — Sino Gas & Energy Holdings Ltd., Australia’s only indigenous gas producer in China, will be swallowed up by U.S. private equity firm Lone Star Funds after its shareholders overwhelmingly voted in favor of a A$530 million ($381 million) cash takeover offer.
In a result deemed “very, very good for shareholders” by Chief Executive Glenn Corrie, about 88% of the circa 70% of registered voting shareholders approved the offer of 25 Australian cents a share.
The solid approval vote came despite a strong initial view when the offer was made in late May that the deal undervalued the company and its ability to ride the wave of fast-growing gas demand in China.
The takeover deal, which was unanimously recommended by the Sino Gas board and was deemed “fair and reasonable” by independent expert Grant Thornton, required 75% approval from voting shareholders.
ASX-listed Sino Gas, which started production in the remote Ordos Basin in North China’s Shanxi province in late 2014, is well placed to benefit from the Chinese government’s mandated switch from coal to gas to clean up the country’s air.
But the hiccups it has encountered with payments and approvals have highlighted the risks of a small foreign company operating in the world’s fastest growing major market for gas.
Corrie, a former director at London-listed Ophir Energy PLC and Singapore investment house Temasek, said he was unsure whether he would remain with the business, having had no discussions with Lone Star on the topic. “I’m just continuing to run the business as I have been and bringing the transaction to completion,” he said after the shareholder meeting on the deal in Sydney.
He said the fundamentals for the business were positive, but again highlighted the risks of Sino’s operations in China. “For the Chinese gas market, the outlook still remains very solid, and there’s still strong demand for gas going forward,” he said. “But there are always the risks of operating in the country: that was the original thesis behind the transaction for us, and as a private firm I think (Lone Star) can probably weather through some of the storms that come with the firm over time like we’ve experienced over the last couple of years.”
Sino Gas Chairman Philip Bainbridge reminded shareholders earlier at the meeting that the company had received no higher offer than Lone Star’s, and reiterated the “attractive premium” the offer represents to recent trading levels.
Shareholders “will receive certain value for their investment in Sino Gas and avoid the ongoing risks and uncertainties associated with Sino Gas’ business as outlined in the Scheme Booklet,” Bainbridge said.
The deal is due to be approved by a court on Tuesday and be wrapped up on Sept. 19.
This article was originally published by the Australian Financial Review.
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