Sino Gas fulfills major condition of Lone Star's $530m offer
Summary: Australian energy group Sino Gas & Energy has relinquished a stake in one of its main Chinese LNG projects, fulfilling a key condition of US private equity firm Lone Star’s $530 million bid.....
Sino Gas gave up 21 per cent of its share of the Linxing gas project to its state-owned partner, China United Coal Bed Methane, to comply with China's policies on foreign ownership of resource projects.
Sino Gas chief executive Glen Corrie said the conclusion of the China deal, which cut its stake in the project to 49 per cent, meant Foreign Investment Review board approval was the final major hurdle facing Lone Star's offer.
Lone Star, which made a 25¢-a-share cash offer for Sino in May, expects a response to its FIRB application within a month.
"This has satisfied one of the big conditions precedent and now there are only the FIRB approvals ahead,” Mr Corrie said. "The FIRB will look at it in a positive light as we don’t have Australian assets or operate on Australian land. We don’t anticipate any major challenges to it."
Under the Linxing deal, Sino hands off around 1000 square kilometres of land to China United in exchange for an eight-year extension on its gas production sharing contract.
"We get the value at the back end of production by shifting control. This production sharing contract will now extend from 2028 to 2036 and our view is that it’s largely value-neutral," Mr Corrie said.
A source close to Lone Star said the Linxing agreement gave more context to the takeover valuation, which some shareholders had suggested was too low.
"This was always a condition in the offer, as Lone Star saw it was an upcoming event and took it into account. This was a key outcome and helps to de-risk the offer further," the source said.
A major shareholder said he still believed the offer undervalued Sino Gas but it made more sense in light of Tuesday's announcement.
Euroz analysts said the bid looked stronger following the reduction in Sino’s share of the Linxang project.
"This is an excellent achievement by management and a very good outcome for shareholders, particularly in light of the Linxang production-sharing contract announcement," Euroz investor notes said. "Our view is that the Lonestar offer is fair. We would contest that if shareholders do not support the scheme, there is greater downside risk to the share price."
Sino Gas’s share price slipped 3.4 per cent to 22¢ a share.