Sino Gas & Energy - Notes JV partner's intended sale of its interest
Sino Gas (ASX:SEH) JV partner, MIE, has announced its intention to sell its 51% stake in Sino Gas & Energy (SGE), the JV company, for US$220m to China New Energy Mining Ltd. This implies a valuation of A$273m for Sino Gas' 49% stake, well above the current A$153m market capitalisation.
- MIE announces intention to sell its entire 51% stake in the Joint Venture Company, SGE, for US$220 million cash to China New Energy Mining Ltd
- This implies a valuation of US$211 million net to Sino Gas' 49% holding of SGE (A$273 million) before working capital adjustments
- Sino Gas currently undertaking independent evaluations and discussions with our potential new partner
- Initial indications suggest a well-funded partner with an experienced management team and strong-track record in oil and gas in China.
- Additional information will be provided to the market after the Company has had sufficient time to meet with our potential new Joint Venture Partner
Sino Gas & Energy Holdings Limited (ASX: SEH, "Sino Gas" or the "Company") notes the announcement made by its Joint Venture partner, MIE Holdings Corporation ("MIE", HKSE Ticker 1555) to the Hong Kong Stock Exchange on 27 April 2016 regarding its agreement to sell the entire issued share capital and loans of Asia Gas & Energy Ltd, the holder of MIE's 51% interest in the Joint Venture subsidiary, Sino Gas Energy Limited (the "Joint Venture" or "SGE").
Total consideration for the disposal of Asia Gas & Energy Limited to China New Energy Mining Limited ("CNEML") is US$220 million in cash (plus a working capital adjustment). CNEML is independent from MIE and Sino Gas. MIE states US$88 million has been paid upon signing the sale agreement with the remainder due at closing. The anticipated long-stop closing date is within 120 days following the signing of the Agreement (August 26, 2016) or such other date as agreed between the parties. MIE states the reason for the disposal is to "enhance the financial strength and liquidity of the Group". Completion of the transaction is subject to conditions, including the approval of the transaction by MIE’s shareholders. A copy of MIE’s announcement can be viewed on MIE's website.
Sino Gas is currently evaluating the particulars of the proposed transaction. However, based on information received to date, Sino Gas looks forward to welcoming our new potential Joint Venture partner. While Sino Gas holds pre-emption rights at the asset level, Sino Gas does not anticipate being able to exercise pre-emption rights at the Asia Gas & Energy Ltd holding company level.
Discussions will be held immediately with CNEML on strategic priorities and post deal integration. CNEML has indicated it intends to invest to accelerate development of SGE. In the absence of mutual agreement to change any governance provisions of the Joint Venture, the existing governance procedures will continue going forward with CNEML. The majority of staff within SGE have been hired by the Joint Venture and are not expected to be affected by the change of ownership. Senior SGE management appointed by MIE will have a minimum transition period to ensure a smooth transition.
Sino Gas believes this potential transaction provides significant third-party validation of the assets and recognition of value not reflected in the current share price. On an implied valuation basis, this transaction, should it complete, will be ~US$211 million net to Sino Gas' 49% stake in SGE (A$273 million) before working capital adjustments.
Sino Gas believes a Joint Venture partner with a stronger balance sheet will assist in maximising the value of the assets as it moves into a critical phase of delivery as it moves through the key regulatory approvals and enters full field development of the Linxing and Sanjiaobei PSCs.
Sino Gas intends to provide additional details to the market after the company has had an opportunity to complete our internal assessments, including meeting with CNEML.
Commenting on the proposed sale of MIE's stake in SGE, Sino Gas Managing Director Mr Glenn Corrie said:
"While it remains early in assessing the potential impact of the sale of MIE's stake, this is potentially a transformational deal for Sino Gas. Initial indications we have received to date suggest to us CNEML will be a potentially strong new partner for our Ordos basin assets and has stated its intention to actively invest to accelerate the development of SGE. We look forward to creating a cohesive strategy for propelling the development and realising the inherent value of these assets. We believe this deal reflects the significant potential of the assets and implies a valuation which is not reflected in our current share price."