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Eric Ng

ENN Energy Holdings, one of the mainland's largest natural gas distributors, saw its shares fall as much as 14 per cent before settling at a seven-month low after a deal to buy its parent firm's loss-making natural gas station businesses in the United States and Canada for US$200 million.
The shares yesterday fell 9.3 per cent to HK$49.25, its lowest closing level since March 24 and after a day's low of HK$46.70.
"We believe investors' initial reaction to this acquisition could be mixed," Standard Chartered said in a research note.
"Negative sentiment could arise from the fact that ENN is acquiring loss-making businesses from its parent."
The deal could pare ENN's net profit by as much as 8.6 per cent if no improvement to the losses was made, the note said.
ENN said it had agreed to pay ENN Transportation Fuels, controlled by its chairman and largest shareholder, Wang Yusuo, and his wife, US$20 million for the Canadian business and US$180 million for the US business.
The Canadian operation owns four gas stations, serving mainly trucks. It sources the gas locally, and the stations began operation in January.
The operation posted a net loss of 32.64 million yuan (HK$41.4 million) in the first nine months. Net loss was 33.4 million yuan for the whole of last year.
The US operation owns 29 stations serving mainly logistics and trucking businesses. It also buys its gas from local suppliers.
The operation made a net loss of 147.6 million yuan in the first nine months, following a loss of 217.2 million yuan for the whole of last year.
Daiwa Securities forecast the deal to cut ENN's net profit by 3 per cent next year and by 1 per cent in 2016, adding more pressure on the company when it was fighting against a potential margin squeeze in the domestic market as a result of the city-gate gas price rise.
Daiwa estimated ENN's net debt-equity ratio to rise by 11 percentage points to 88 per cent this year, and by 10 percentage points to 68 per cent next year, following the recent acquisitions.
"Even though it looks attractive when compared with ENN's current [share price-book value ratio of 4.2 times for this year], we believe it mostly reflects a discount given the initial loss-making status of the projects," it said.


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ENN agreed to pay ENN Transportation Fuels, controlled by Wang Yusuo (above) and his wife, US$200 million for its natural gas station businesses in the United States and Canada.

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ENN Energy Holdings saw its shares fall as much as 14 per cent before settling at a seven-month low after a deal to buy its parent firm's loss-making natural gas station businesses in the United States and Canada for US$200 million.
