Singapore-listed Innopac is making a $17.1 million acquisition to re-enter the compressed natural gas market in China.

The company said on Sunday that it will buy an 81.82 per cent stake in Extera Pte Ltd, a Singapore-incorporated investment holding company.

Extera's sole investment is a 90 per cent equity stake in Dezhou Sheng Rong Gas Co. Ltd.

Sheng Rong owns and operates CNG filling stations and supplies and distributes CNG in Shandong province.

It currently operates two CNG filling stations and is building a third. It has also obtained permits and approvals to build two more CNG filling stations and a mother station.

The mother station will be located close to a natural gas pipeline and upon completion, Sheng Rong will be able to supply and distribute CNG to other CNG filling stations.

"The acquisition heralds Innopac's actual foray into China's natural gas market," said Innopac managing director Wong Chin Yong.

"Sheng Rong is already operating two CNG filling stations in Dezhou City, giving it a distinct advantage in the heavily regulated CNG sector in China, which is poised for rapid, long-term growth as China continues to strengthen efforts on countering environmental pollution."

This acquisition is also in line with Innopac's strategy to diversify into businesses with the potential of strong cash flow, growth and capital gain, he added.

Innopac had in 2011 made an investment in another Chinese CNG firm, Grand Prosper Group. Grand Prosper did not have any operational CNG filling stations, though it had permits to build and operate a couple of stations.

Innopac eventually decided it would take too long before these CNG filling stations could be fully operational and impaired its investment in Grand Prosper.