Innopac Holdings Limited (Innopac), an investment holding and management company headquartered in Singapore, is making an investment to re‐enter the compressed natural gas (CNG) market in China, a fast growing sector in the world’s second largest economy. Innopac takes a majority stake in Extera which owns 90% of a CNG filling stations and natural gas distribution operator in Shandong Province, eastern China.
The Company has entered into a conditional sale and purchase agreement with Rubic Prize Limited to acquire almost 82% of the issued and paid-up share capital of Extera Pte Ltd (Extera) that it owns for a purchase consideration of SGD 17.1 million (USD 13.6m).
Extera is a Singapore‐incorporated investment holding company, and its sole investment is the 90% equity stake in Dezhou Sheng Rong Gas Co. Ltd. (Sheng Rong), a Chinese‐foreign joint venture company, with the balance 10% equity interest held by a Chinese private company.
Sheng Rong is principally engaged in the ownership and operations of CNG filling stations and the supply and distribution of CNG in Shandong province. It currently operates two CNG filling stations with one in Xin He East Road, Dezhou City and the other in Lao Ling County. Sheng Rong is in the process of building a third CNG filling station and has obtained permits and approvals to build two more CNG filling stations and a mother station. The mother station will be located close to a natural gas pipeline and upon completion, Sheng Rong will be able to supply and distribute CNG to other CNG filling stations.
Rationale for Acquisition
Commenting on the latest investment, Mr Wong Chin Yong, Managing Director and Chief Executive Officer of Innopac, said, “The acquisition heralds Innopac’s actual foray into China’s natural gas market. Sheng Rong is already operating two CNG filling stations in Dezhou City, giving it a distinct advantage in the heavily regulated CNG sector in China, which is poised for rapid, long‐term growth as China continues to strengthen efforts on countering environmental pollution.”
Innopac’s previous CNG investment in China in 2011 was supported by permits to install stations but not by stations already in operation and was subsequently impaired by the Company.
In a bid to address its pressing environmental issue of polluted urban air, the authorities in China are pushing for greater use of natural gas, to buck its reliance on other polluting energy sources such as oil and coal.
According to a natural gas development plan report issued by China’s national Reform & Development Committee dated 3 December 2012, it is estimated that by the end of 2015, China’s annual natural gas consumption will reach 230 billion m3 and will account for 8% of total energy consumption in China. Globally, natural gas accounts for 23.8% of total energy consumption. Back in 2010, the annual natural gas consumption in China stood at 24.5 billion m3, accounting for just 2.2% of China’s total energy consumption then.
One of the areas that China policy makers are supporting and promoting is the CNG vehicle market. According to the China Vehicle Engineering Institute, as at end of 2012, there were more than 2 million CNG vehicles registered in China. In line with China’s huge population and urbanisation program, the number of CNG vehicles is expected to grow strongly, thereby increasing the demand for CNG supply and filling stations.
Lauded as one of the model cities for clean energy usage in China, Dezhou city, which has a population of more than 5.5 million people, is a pioneering city in terms of vehicle CNG conversion rate and consumption growth. It is estimated that residents in Dezhou city can save as much as 40% of fuel costs by switching or converting to CNG vehicles.
Based on industry estimates, by end 2013, there will be approximately 130,000 CNG vehicles on the roads of Dezhou, and with less than 20 CNG filling stations currently available in the city, this creates a situation where demand for CNG outstrips supply.
The acquisition allows the Company to leverage on the existing operations of Sheng Rong to enter the CNG market which has high barriers to entry, especially for foreign investors due to stringent regulations. Sheng Rong will also bring to the Company experience in procuring permits and approvals to build and operate CNG filling stations in Shandong Province.
(Source: Innopac Holdings Ltd)