China Tian Lun Gas Holdings Ltd. (01600.HK), a private natural gas distributor in the mainland, is considering buying stakes in larger state-owned rivals to fast-track its ambitious expansion plan and carve out a bigger slice of the rapidly-growing market for clean-burning fuel.
“We are always looking at stake purchase into state-owned enterprises (SOEs). Once they decide to float the downstream assets, we will take quick action,” the Zhengzhou-based firm’s chairman Zhang Yingcen told EJ Insight.
A likely target is Kunlun Natural Gas Utilization Co., a downstream natural gas distribution arm of PetroChina Co. (00857.HK). There are expectations that the state-owned energy giant might consider a business reshuffle and sell some gas stations as the group’s former chairman Jiang Jiemin and four other senior managers are under investigation for suspected offences.
“As the parent company is in trouble, they might consider spinning off some downstream business. Kunlun has very big advantage as a subsidiary of PetroChina, as it helps the firm secure reliable gas supply,” Zhang said in an interview.
Kunlun Natural Gas Utilization Co. has compressed natural gas (CNG) stations in 14 provinces and liquefied natural gas (LNG) stations in eight provinces in southern China, according to earlier media reports.
Tian Lun’s stake purchase plans come as Beijing has vowed to deepen reform of the nation’s industrial and financial behemoths through adoption of a mixed-ownership model. Private investors could be allowed to take 10 to 15 percent of an SOE’s equity, state news agency Xinhua reported on Nov. 11.
Zhang also outlined an ambitious plan to boost the firm’s gas stations to 1,000 within five years. As of October this year, Tian Lun had just 19 gas stations. In other initiatives, the company aims to ramp up its city gas projects to 100 third- and fourth-tier cities in China. Zhang believes the plans, if implemented successfully, could boost the gas distributor’s market capitalization to HK$50 billion (US$6.4 billion) by 2018, from the current HK$6 billion.
“We have figured out a success formula that can be copied across the country quickly to expand our presence,” Zhang said, as he revealed plans to “partner with [Communist] Party newspapers at the provincial level”.
Tian Lun aims to leverage the newspapers’ good connections with local governments and the business community, he said, adding that the firm has already entered into such strategic partnerships with some media organs in Hebei, Henan and Hunan and that it is currently in discussions with an entity in Jilin.
The party newspapers are keen to tap into the lucrative clean energy sector to seek better revenue growth. Gas stations have an average profit margin of 20 to 30 percent, much higher than that offered by residential gas distribution. The model will combine the newspapers’ local clout together with Tian Lun’s technology and management expertise, Zhang added.
The company aims to set up joint ventures with the Party newspapers, with Tian Lun holding 70 percent stakes in the ventures. Reporters will get 100,000 yuan bonus for helping get the nod for setting up a gas station in a county-level city and 250,000 yuan for a prefecture-level city.
To facilitate its business expansion, Tian Lun is sitting on a cash pile of up to one billion yuan.
The firm aims to capitalize on Beijing’s push for increased usage of clean-burning fuels in the coming decade. The government had earlier set out an ambitious target to double natural gas use to 230 billion cubic meters by 2015 from the 2010 level.
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