HONG KONG - Beijing Enterprises Group (BJEG) again increased its stake in China Gas Holdings Ltd, a takeover target of Sinopec, raising the prospect of a bidding war between the two State-controlled companies.

BJEG, the State parent of utility Beijing Enterprises Holding Ltd, snapped up HK$663 million ($85.4 million) of shares in China Gas on Monday, raising its holding to 12.65 percent, according to the Securities and Futures Commission of Hong Kong. That followed its purchase of a 5.4 percent stake from Oman Oil last week that took its share to nearly 9 percent.

BJEG, engaged in gas distribution, water, infrastructure, toll road operation and beer production, has not made public its motive behind the acquisitions. Jimmy Tam, executive director of Beijing Enterprises Holding, on Friday described the stake purchase from Oman Oil as "a valued investment."

China Gas late last year received an unsolicited $2.2 billion takeover offer from Sinopec?and ENN Energy Holdings. The utility rejected the offer, saying it failed to reflect the true value of the company.

Chinese companies rarely make unsolicited offers and it is even rarer to see two State-owned entities vying for the same asset. A source with direct knowledge of BJEG's China Gas transactions said the possibility of the Beijing-based company entering a bidding war could not be ruled out.

"We can advance further or retreat from here. But one thing is very clear: the price we paid for the stake is higher than the offer of Sinopec and ENN," the source said, declining to be identified because the information was confidential.

Shares in China Gas rose 4.1 percent on Monday to close at HK$4.06 after climbing to HK$4.11, the highest level in more than a year, beating a broader market that fell 2.61 percent. Volume reached 249 million shares.

Shares of Beijing Enterprises, whose natural gas distribution business is currently limited to Beijing, closed 1.76 percent lower at HK$44.70.

The battle for China Gas has intensified in the past few months, with several key shareholders, including South Korea's SK Holdings, having increased their stakes in the takeover target through secondary market purchases.

A successful takeover by Sinopec and ENN would create a large natural gas distribution group in China's rapidly growing gas market, analysts say.

Higher offer

BJEG paid HK$4.10 each for 161.8 million shares on Friday, representing a 17 percent premium to the HK$3.50 a share offered by Sinopec and ENN, according to the Securities and Futures Commission of Hong Kong. The consortium is still awaiting Chinese regulatory approvals to launch a formal bid for China Gas.

Eric Leung, joint managing director of China Gas, said it was not immediately known who sold the latest batch of shares.

Sinopec and ENN will have to raise their offer if they still want to acquire China Gas, analysts say.

"We expect the original offer price from Sinopec-ENN to be adjusted upwards as shareholders will now use the HK$4.10 per share transaction price as a reference point," said Mike Yip of CIMB.

UBS analyst Stephen Oldfield said in a note to clients: "This adds to our conviction that any ENN/Sinopec offer price would need to increase substantially to succeed."

Any further increase in the offer from Sinopec and ENN would stretch ENN's finances, analysts say.

Officials at Sinopec and ENN were not immediately available for comment.