Refining giant China Petroleum and Chemical Corporation (SNP - Free Report) , also known as Sinopec, and gas supplier ENN Energy Holdings Ltd. have withdrawn their $2.2 billion offer for the purchase of privately held China Gas citing regulatory hindrances.
The consortium faced a number of obstacles in obtaining regulatory consents for its proposal. Sinopec and ENN had made a conditional cash offer of HK$3.50 for China Gas in December 2012, which was discarded by the piped-gas distributor on grounds that it did not reflect the correct worth of the company.
In a separate filing, it has been reported that hostility from China Gas’ management was another reason for the withdrawal of the offer. The bid, if successful, would have marked the first-of-its-kind unsolicited takeover in Hong Kong.
The prerequisites of the Sinopec-ENN proposal were the receipt of required consents from the Chinese regulatory authorities as well as the nod from China Gas to carry out due diligence.
However, in view of the shelving of the Sinopec-ENN bid for China Gas, Sinopec has signed a strategic agreement with China Gas Holdings Ltd. Per the agreement, both the companies will jointly develop natural gas and liquefied petroleum gas reserves in China.
China Gas stated that it plans to form a joint venture with Sinopec. The venture will deliver liquefied petroleum gas (LPG) produced by Sinopec, which would be used by China Gas as a step forward and join in the development of city gas projects.
Sinopec, with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia. The company is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company is also the largest producer and distributor of petrochemicals in the nation.
Sinopec generates majority of its revenue from downstream activities unlike its peers PetroChina Co. Ltd. (PTR - Free Report) and CNOOC Ltd (CEO - Free Report) , whose activities are concentrated in upstream operations.
Sinopec holds a Zacks #2 Rank (short-term Buy rating).