Green Dragon Gas
Green Dragon is the parent company of Greka China, and is exclusively focused in gas industry in China. Green Dragon operates within China under its subsidiary Greka China Green Dragon is a gas supplier based in China with a focus on the production, development, production, distribution and sales of natural gas from coal seams, commonly known as coal bed methane or CBM.
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Enter the Dragons: China's coal bed methane specialist prepares to do the splits
Investors it seems have been slow to catch on today. But they should be in no doubt, this is a pivotal period for Green Dragon Gas (LON:GDG) - one which is likely to unlock considerable value for investors.
Earlier today the Chinese coal bed methane producer announced plans to demerge its Greka Drilling arm.
Investors will receive three Greka shares for every Green Dragon share they currently own in the form of a dividend. Trading in the new shares begins on March 8.
Green Dragon also re-confirmed its plans to seek a main-board listing in Hong Kong.
“Hong Kong is increasingly becoming a home for commodity and asset backed companies which have core operations in China or are linked to the Chinese consumer,” said chairman Randeep Grewal last year when he first unveiled plans for the listing.
“There have been several recent examples of successful Chinese companies migrating from AIM to the Hong Kong main board and achieving increased investor recognition and material increases in valuations as a result.
“We intend to replicate such successes with a primary listing in Hong Kong.”
The company laid the foundation to the current demerger process last December when it raised almost US$103 million from investors by issuing 8.8 million new shares.
Today the company said Greka will be handed US$50 million, which will help fund an ambitious 25-rig expansion programme. The group will also have a US$12.5 million revolving credit facility.
Chairman Randeep Grewal said the demerger will build on the early mover advantage enjoyed by the company’s Chinese operating arm GTS Zhengzhou.
However, the business is targeting expansion opportunities in India, Indonesia, Thailand and Australia in the longer term.
“We have built a standalone drilling business within Green Dragon since 2007 with a management team that has a combined 150 years experience of drilling,” Grewal said.
“Upon admission to the AIM market of the London Stock Exchange, Greka Drilling will have a shareholder list that mirrors that of Green Dragon Gas.
“The board believes that the separate entities will provide shareholders and the investment community with greater clarity resulting in improved access to the capital markets."
The company is what can only be described as a fully-integrated coal bed methane specialist focused on China.
It has six production sharing contracts in six provinces, and owns a transportation fleet and retail outlets.
The pace of change at Green Dragon has been almost break-neck. As well as the placing and demerger, the group took the brave decision last year to dissolve a farm-in partnership with industry giant ConocoPhillips and go it alone.
In October Green Dragon paid US$35 million for an initial 33 per cent stake in Sinoenergy Corporation (rising to almost 60 per cent).
This provides access to midstream and downstream sales infrastructure within niche geographical locations in China.
In addition, in September the group acquired 25 new vehicle refuelling stations in Henan province for $15 million plus construction costs.
These locations are within trucking distance of the company’s GSS coal bed methane block and the midstream operation in Zhenzhou.
All this reveals that Green Dragon has made rapid progress in building the gas value chain through the acquisition of mid-stream and downstream assets.
According to analysts, the strategy allows the company to extract the maximum value for the upstream gas produced.
The demerger will help simplify the business and it is hoped it will also allow it to unlock significant value.
However even before the split was announced some of the more influential and savvy brokers recognised that the value of Green Dragon is well above the current share price.
Goldman Sachs recently raised its price target to US$21.30 a share from US$15.10, while Evolution Securities reckons the stock is worth US$19.
At midday, Green Dragon was trading at $14.15, up just 12 cents, though in the past year the stock has doubled in value.
“Green Dragon Gas has made rapid progress in building the gas value chain through the acquisition of mid stream and downstream assets which allows the company to extract the maximum value for the upstream gas produced,” said Evolution analyst Keith Morris in a recent note.
Other Green Dragon Gas news
- Green Dragon’s Grewal speaks at prestigious Chinese conference
2011-08-31 - Green Dragon Gas chairman Grewal appointed to provincial gov't board in China
2011-08-03 - Green Dragon Gas says Chinese CBM contracts remain in ‘full force and effect’
2011-03-12 - Green Dragon Gas to move ahead with Hong Kong IPO
2010-11-09 - Green Dragon Gas to take Sinoenergy stake to expand Chinese CBM upstream business
2010-10-08
