Tian Lun Gas Holdings Ltd. (1600.HK) officially announced on December 27, 2020 that Henan Tian Lun, an indirect wholly-owned subsidiary of the former, proposed an offer to acquire 100% equity interests in Kingland Gas Co., Ltd. based in Jingyuan County, Gansu Province at a price of CNY 233,300,000 on October 22, 2020; on December 25, 2020, it proposed to offer CNY 832,760,000 for purchase of the entire equity interests of Gansu Kingland New Energy Co., Ltd., and to further acquire 100% equity of Datong Kingland Gas Co., Ltd., Huzhu Kingland Gas Co., Ltd., Datong Kingland CNG Co., Ltd. and Huzhu Limin CNG Co., Ltd. upon restructuring of Gansu Kingland New Energy. The three urban gas projects and two CNG projects to be acquired are all situated within the economic zone of the Lanzhou-Xining city cluster, a key cross-provincial city cluster in western China. New urbanization is looking to advance in this region under the guidance of the government, pushing forward the coordinated de

Figure 1 Map of the Economic Zone of Lanzhou-Xining City Cluster

The target companies Datong Kingland Gas and Datong Kingland CNG are situated in Datong County of Xining, the capital city of Qinghai Province, and Huzhu Kingland Gas and Huzhu Limin CNG sit in Huzhu County of Haidong City, Qinghai Province. The two counties have a large resident population, with the combined population accounting for 14% of the total of Qinghai Province. Furthermore, both counties enjoy distinct geographical advantages, as they are neighboring each other and in close proximity to Xining. Datong County is situated 35 km from Xining, while Huzhu County 40 km from Xining. Thanks to their convenient transportation and favorable locations, the two counties are expected to attract more permanent resident population and businesses in the future.

The Kingland projects in Datong and Huzhu counties have two sides to be counted on for operation. On the industrial use side, the projects will see promising growth of industrial gas sales. In the operating area of Datong Kingland, there have been so far the relatively developed Beichuan Industrial Park, a provincial-level industrial park having brought in a total of 270 enterprises, including 37 industrial enterprises above designated size; in the operating area of Huzhu Kingland there have been the Tangchuan Industrial Park, the Green Industrial Park (a provincial-level industrial park under construction) and the Pingbei Industrial Park. Looking into the future, the target companies will continue to achieve substantial growth of industrial gas sales under the auspices of industry transfer.

Figure 2 A corner of the industrial park within the target company area of Huzhu County

On the civil use side, gas connection for domestic use is in urgent need. It is showing a huge potential for growth of urban gas connection business, as the latest overall urban development plans of the local governments demonstrate that, as of 2030, the total population of Datong County is expected to reach 690,000 (currently 468,300), while the total population of Huzhu County will reach 450,000 (currently 401,600). In the rural areas of these two counties, the project areas enjoy comparatively flat terrains for the laying of gas pipelines and relatively concentrated population, resulting in moderate difficulty in facility installation and connection. Tian Lun Gas is working to make full use of its advantages in operation and management to secure larger percentage of local population accessing gas on the whole.

Figure 3 Banyan, a new village having shaken off poverty

Meanwhile, both Datong Kingland CNG and Huzhu Limin CNG to be acquired this time own a gas station in operation, securing sufficient vehicle gas supply for the surrounding areas.

Figure 4 A gas station in Datong County

Tian Lun Gas is expanding its gas business coverage for the first time into two high-quality counties in Qinghai Province, building a solid foundation for further expansion of gas supply and services in the area. Tian Lun Gas believes that the four target companies, upon acquisition, will make their gas sales grow stably in the future and create adequate space for performance growth of the listed company relying on the good habit of gas consumption among residents. By leveraging on the policy advantages of the development in Lanzhou-Xining city cluster, Tian Lun Gas will also seek to achieve cross-region synergies between the new projects acquired and the existing well-established projects in Gansu Province so as to provide better quality gas services to more local residents and enterprises.

As of the date of this announcement, Tian Lun Gas has had 67 urban gas supply projects covering 16 provinces in China.