NATURAL gas distributor Sino Gas International Holdings is set to be taken private in a deal between chief executive Yuchuan Liu, Zhongyu Gas Holdings and Morgan Stanley Private Equity Asia (MSPEA).

Sino Gas, which owns and operates natural gas distribution systems in Beijing, Hebei, Jilin, Jiangsu, and Yunnan Provinces, will merge with Cayman Islands-based Prosperity Gas under the deal.

Prosperity is a wholly-owned subsidiary of Harmony Gas, itself a wholly-owned subsidiary of MSPEA.

MSPEA will invest almost US$30 million into Harmony Gas by way of a share purchase, while Mr Liu will acquire a stake in Harmony Gas by investing his 11.3 per cent Sino Gas stake into Prosperity.

Zhongyu would also commit US$37.45 million to Harmony Gas, the investments leaving it with 50%, MSPEA with 38.7% and Mr Liu with 11.3% stakes in Harmony Gas, and through it, the privatised Sino Gas.

Prosperity has made an offer of US$1.30 per share to shareholders of Sino Gas, which is listed on the Over the Counter Bulletin Board.

In an announcement, Sino Gas has said the merger consideration represented a 160% premium over the previously announced offer price of 50 cents and a 165% premium over the closing price of 49 cents per share of Company common stock as quoted by OTC Bulletin Board on December 6 2013.

“The merger consideration implies an equity value of the company of approximately US$74.9 million, on a fully diluted basis,” it said.

The Sino Gas board of directors has recommended shareholders accept the offer following its recommendations by board members unrelated to Mr Liu, MSPEA or Zhongyu, though the merger is still subject to shareholder and government approval.

A series of US-based law firms announced they would investigate the board for possible breaches of fiduciary duty in light of the offer, asking whether the company had been adequately shopped to other potential buyers, as well as whether Prosperity was underpaying for Sino Gas shares.

However, there had been no claims or allegations made at the time of going to press.