OREANDA-NEWS. January 20, 2012. The battle for China Gas Holdings (0384.HK) intensified as South Korea's SK Holdings (003600.KS) tightened its grip on the takeover target which received an unsolicited USD 2.2 billion indicative offer from a consortium that included Sinopec (600028.SS).

SK Holdings' move to boost its stake in China Gas to 12.24 percent and buy an additional USD 104 million worth of its shares is set to pressure ENN Energy Holdings Ltd (2688.HK) and state-owned China Petroleum & Chemical Corp (Sinopec) (0386.HK) (SNP.N) to sweeten their proposed offer, analysts said.

Buying China Gas will give the acquirer access to China's largest portfolio of natural gas projects. The company has piped gas operations in 151 cities and more than 100 compressed natural gas stations. Its gross profit in the six months ended September jumped 32 percent to HKD1.62 billion (USD 208 million).

ENN shares fell more than 8 percent on concerns the company's finances may come under strain if it had to increase the offer, while China Gas shares extended gains on the news.

"The existing shareholders are trying, basically, to make a quick buck on their existing shares of China Gas," said Kim-Chong Tan, an energy analyst with Yuanta Securities in Hong Kong.

"The question is whether ENN will up the price. Financially it's getting more and more stressful for ENN," Tan added.

A unit of SK Holdings would buy up to an additional 120 billion won (\\$104 million) in China Gas. The stake purchase plan comes after China Gas last month rejected the proposed unsolicited cash offer saying it failed to reflect the fundamental value of the company.

As part of that plan, SK E&S has already acquired 8.1 million shares of China Gas at between HKD3.64-USD 3.69 each, the company said in a regulatory filing earlier this week, taking its stake to 7.75 percent. Another SK Group affiliate, SK Gas (018670.KS), separately holds 4.49 percent of China Gas.

The latest purchase takes SK Group member firms' collective holdings in China Gas to 12.24 percent, giving it significant influence in the fate of the first-ever unsolicited takeover battle for a Hong Kong-listed company.

"Sinopec is behind the deal. I don't think anyone wants to get in front of Sinopec," Tan said.

SK Holdings is a South Korean conglomerate, with business interests spanning across energy to telecom. SK Innovation runs the country's No.1 crude refiner and SK Telecom is the country's top mobile operator.

CHINA GAS SHARES UP

The latest purchases were made well above the indicative offer price of HKD3.50 each, clearly suggesting that SK Holdings does not intend to sell the shares in the Sinopec/ENN offer.

However, an SK Holdings spokeswoman flatly denied a South Korean media report that its city gas-providing unit SK E&S's stake purchase might be considered as a move toward a hostile takeover of the Chinese company.

"E&S has consistently increased its CGH stake since 2006. After the purchase, E&S will respect and follow the company's existing management and multiple strategic investors," the spokeswoman said, adding SK sees a lot of synergies via investment in China Gas.

China Gas shares rose to an intra-day high of HKD 3.74, a premium of 6.9 percent to the offer price. It closed up 0.8 percent at HKD 3.70.

ENN closed 8.1 percent down at HKD 22.10, while Sinopec shares fell 1.3 percent. The benchmark Hong Kong share index fell 0.3 percent.

Last month, China Gas hired Macquarie Group Ltd (MQG.AX) to advise on the deal. The potential offer is conditional on more than 50 percent shareholder acceptance. Citigroup (C.N) is advising the Sinopec/ENN consortium.

The Sinopec/ENN consortium is in the process of securing regulatory and shareholder approvals before making a formal offer, a source familiar with the matter told Reuters.

The consortium is already facing opposition from Fortune Oil plc (FOOI.L), another significant shareholder in China Gas. Last month, Fortune said it would not accept the Sinopec/ENN offer.

Shares in China Gas had fallen sharply since late 2010 when China Gas said Managing and Executive Director Liu Ming Hui and Executive President Huang Yong were detained by police in the southern Chinese city of Shenzhen for suspected "embezzlement of the assets of an organization in which they have duties.