Sinopec Corp (0386.HK) and ENN Energy Holdings are finding the odds increasingly stacked against them in their $2.2 billion bid for China Gas Holdings (0384.HK) as regulatory hurdles remain uncrossed and key shareholders of the target company place new obstacles in their way.

The consortium, which announced the offer in December, has yet to win anti-monopoly approval from China's Ministry of Commerce (MOFCOM), one of the preconditions set out in Sinopec and ENN Energy's (2688.HK) proposal. The MOFCOM recently extended its review for the offer to around the end of August.

But the consortium has set August 6 as the so-called long stop date for the offer. That means if the pre-conditions set out in their proposal are not met by then, Sinopec and ENN may have to drop what would be the first unsolicited offer for a Hong Kong-listed company or reset the long-stop date for the fourth time.

Buying China Gas would give Sinopec, Asia's biggest oil refiner, access to a large portfolio of piped-gas projects across China. China Gas rejected the offer in December, saying it failed to reflect the value of the company.

Sinopec and ENN, also a piped-gas distributor, may extend the offer towards early September as dropping the offer weeks before MOFCOM's review deadline would risk embarrassing the authority, sources with direct knowledge of the matter said.

"It does not matter whether Sinopec and ENN would announce a further extension of their offer on Monday. The fact is it's getting increasingly difficult for them to win the hostile takeover battle," one of the sources said.

"Perhaps it's more important for Sinopec and ENN to consider how to exit the game without losing face," said the source, who requested anonymity because of the sensitivity of the subject.

Sinopec and ENN officials were not immediately available for comment.

The consortium has already extended the offer period three times over eight months in the absence of regulatory approval and permission from China Gas' board to conduct due diligence on the company that has piped-gas operations in 160 cities and 20,000 employees.

COMPLICATED TAKEOVER

Shares of China Gas have consistently traded above the HK$3.50-per-share offer price as some of its key shareholders, including Liu Minghui, former managing director and co-founder of China Gas, jostled to raise their stakes in the company.

The stock closed 0.47 percent higher at HK$4.27 on Friday, a 22 percent premium to Sinopec/ENN indicative offer price.

About 51 percent of China Gas are held by state-controlled utility Beijing Enterprises Group (BJEG) and two other investors, one of them a venture set up by London-listed Fortune Oil (FOOI.L) and Liu, and the other a unit of South Korea's SK Group (003600.KS).

To win the backing of China Gas shareholders, Sinopec and ENN will have to sharply raise its offer, analysts say.

Sinopec has the money, but a bigger offer would overstretch the finances of ENN, which holds 55 percent of the consortium, they say. Sinopec teamed up with ENN as it needs its gas distribution expertise to run China Gas.

The long-drawn takeover battle has been further complicated by the return of Liu to the company that he co-founded about 10 years ago. Last month, China Gas approved the appointment of Liu as a non-executive director of the company after he was cleared of embezzlement allegations in mainland China.

Liu, managing director of China Gas between 2002 and early 2011, quit after being detained by Chinese police in December 2010. That triggered a sharp decline in China Gas shares and encouraged Sinopec/ENN to make their move.

Weak share prices of China Gas caught the eye of Sinopec's acquisitive chairman Fu Chengyu, who was also attracted to China's rapidly growing gas consumption and a fragmented shareholding structure of the company, sources say.

But the China Gas battle has become complicated after BJEG, parent of Beijing Enterprises Holding Ltd (0392.HK), started buying shares in the target company in May in a rare fight for the same asset between two state-controlled Chinese companies.

BJEG, controlled by the Beijing city government and holding holds about 20 percent of the firm, has kept its cards close to its chest, declining to reveal whether it would launch a counter offer for China Gas.