China’s state-owned pipeline giant agrees to buy Kunlun Energy assets for US$6.3 billion as consolidation gathers steam
- Kunlun Energy, a PetroChina subsidiary, will sell a 60 per cent stake in a Beijing gas pipeline and a 75 per cent stake in its Dalian LNG company to PipeChina
- PipeChina will pay for the Kunlun Energy assets in cash in two instalments
China’s pipeline network behemoth signed a US$6.3 billion asset purchase in the latest step to bolster the nation’s energy security and break down market barriers.
The sale values the Kunlun Energy assets at a 90 per cent premium to book value, Morgan Stanley analysts wrote in an emailed note, while Daiwa Capital Markets pegged the premium at 97 per cent. Both brokerages said the valuation exceeded market expectations.
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In July, PipeChina reached an agreement with PetroChina and China Petroleum & Chemical Corp to give them US$56 billion in cash and shares for pipelines, storage tanks, LNG terminals and other facilities.
In the deal announced after market hours on Tuesday PipeChina will pay for the Kunlun Energy assets in cash in two instalments, PetroChina said in the stock market filing. The agreement also needs approval from authorities.
Kunlun expects to receive about 37 billion yuan in cash from the deal, and will spend half of it on a special dividend, 40 per cent for developing its city gas utility business and 10 per cent to pay down debt, the company said in a Hong Kong exchange filing.
Morgan Stanley estimates this breakdown gives the firm nearly 15 billion yuan for city gas acquisitions, substantially ahead of peers’ spending plans.