By Robb M. Stewart

MELBOURNE, Australia--Private-equity firm Hony Capital has again picked up a stake in Santos Ltd., buying shares roughly eight months after it sold a much biggest investment in the Australian oil and gas producer to a unit of Chinese natural-gas distributor ENN Group Co.

Santos on Friday said China's Hony bought an additional 40 million shares, or about 2.25% of its issued capital to increase its interest to about 3.2%. The shares were bought late Thursday at an 11% premium to the closing price.

News of the purchase buoyed Santos's shares, sending them as much as 8.7% higher.

Hony, which has a record of strategic acquisitions that have helped Chinese companies expand overseas, was a cornerstone investor in Santos' 2.5 billion Australian dollar (US$1.9 billion) rights issue last year. In late March, it agreed to sell its 11.7% holding in Santos to ENN Ecological Holdings Co. for US$750 million, making it the largest shareholder in the Australian company.

A spokesman for Hony said the company continued to see value in Santos. Santos's shares are up a little over 4% so far this year as the energy company has focused on selling assets and cutting costs to pay down a debt burden, after slumping almost 50% last year and more than 40% the year before as oil prices dropped.

"We have faith in the cooperation between ENN and Santos," a Hony spokesman said in an emailed reply to questions. "We expect more synergy and cooperation between China and Australia markets."

A spokesman for Santos declined to comment beyond the brief statement released by the company.

Analysts at Macquarie estimated Hony picked up the shares in Santos at a far lower level than where it made previous investments. It built its 11.7% stake in Santos at an average price of about A$4.64 a share, and sold to ENN for about A$4.84, they said in a research report. It reentered this week at A$3.98 a share.

Santos, which a little over a year ago rejected as too low an about US$5 billion takeover offer from Bermuda-based private-equity firm Scepter Partners, was one of several companies that placed large bets on gas-export plants in Australia in recent years in anticipation of rising demand for the fuel in Asia.

The Adelaide-based company swung to a steep first-half loss and scrapped dividend payouts in August after booking a US$1.05 billion writedown against its flagship GLNG liquefied natural gas project in eastern Australia, which counts France's Total SA and Malaysia'sPetronas Gas Bhd. as partners. GLNG has been ramping up output since shipping its first cargo in October 2015.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

November 10, 2016 23:54 ET (04:54 GMT)

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