China’s pipeline network behemoth inked a $6.3 billion asset purchase in the latest step to bolster the nation’s energy security and break down market barriers. Kunlun shares surged on the news.
Kunlun Energy Co. will sell a 60% stake in a Beijing natural gas pipeline and a 75% stake in its Dalian LNG company for 40.9 billion yuan to the new state-owned firm known as PipeChina, according to a statement to the Shanghai Stock Exchange on Tuesday. Kunlun Energy is a PetroChina Co. subsidiary that owns the majority of a gas pipeline feeding Beijing, as well as LNG import infrastructure.
China Oil and Gas Pipeline Network Corp. President Xi Jinping’s government is part of an effort to consolidate the country’s main pipeline and other medium facilities into a single firm, aimed at increasing competition between drillers and downstream oil and gas sellers. The entity officially began operations in October.
The sale puts the price at a premium of 90% on the book value of Kunlun Energy assets, Morgan Stanley analysts wrote in an email note, while Diva Capital Markets set the premium at 97%. Both brokerages said the valuation exceeded market expectations.
Shares of Kunlun in Hong Kong rose 11% to 1.14 on Wednesday, the highest in more than a year.
In July, Pipchina reached an agreement with Petrochina and China Petroleum and Chemical Corporation to pay $ 56 billion in cash and shares for pipelines, storage tanks, LNG terminals and other facilities.
The deal, announced after market hours on Tuesday, will see Pipchina pay for Kunlun Energy assets in two installments in cash, Petrochina said in a stock market filing. The agreement also requires the approval of the authorities.
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