GAIL sells part of stake in China Gas Holdings for Rs 385cr

State-owned gas utility GAIL India Ltd today said it has sold more than a fourth of its 4.6 percent stake in Hong Kong-listed city gas distribution firm China Gas Holdings for Rs 385 crore.

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GAIL, which made a strategic investment of Rs 137 crore by acquiring 210 million shares of China Gas in 2005, has sold 60 million shares, company's chairman and managing director BC Tripathi told reporters here.

"We had acquired the shares at Hong Kong Dollar 1.1 and we sold the shares at HKD 8.2," he said. The gas utility plans to keep a small strategic interest in the company that will help it retain its board position in China Gas Holdings. "Our gross realisation is Rs 385 crore," he said, adding that the company has to pay taxes like capital gains on this realisation.

The board of GAIL had accorded approval to partially divest its equity stake in China Gas for recoupment of entire initial investment, while retaining the strategic advantage as envisaged at the time of initial investment. "We sold the stake to capitalise on the high price of the shares on the Hong Kong stock exchange," he said.

China Gas has exclusive rights to set up gas distribution projects in 42 cities in China. GAIL picked up equity in the company as China was keen to replicate Delhi's success in using natural gas as a vehicular and domestic fuel in its cities, primarily Beijing, before the 2008 Olympics.

GAIL saw synergies in city gas/CNG business. Now that the city gas distribution business is being pursued by GAIL's wholly-owned subsidiary, GAIL Gas, the company feels continuation of the investment in China Gas does not appear to meet the original objectives. Also, China Gas shares are currently performing well on the Hong Kong Stock Exchange, giving the company a market capitalisation of around USD 4.4 billion.

Sources said GAIL has earned only Rs 16.29 crore as dividend on its investment in China Gas over seven years. As the current share price is more than seven Hong Kong dollars, GAIL believes it is a good time to sell and re-invest the earnings from the stake sale in overseas upstream assets.