Hong Kong-listed MIE Holdings is poised to acquire a 51% interest in a unit of Sino Gas & Energy Holdings, a move that secures funding for the development of two coal seam gas tenements in central China, a person familiar with the matter told Deal Journal Australia.

The deal involves MIE Holdings paying US$10 million upfront to acquire an initial interest in Sino Gas & Energy Ltd., currently wholly owned by Sino Gas & Energy Holdings, and a commitment to invest a further US$90 million at a later date to advance the development of the Sanjiaobei and Linxing assets.

Sino Gas & Energy Holdings said June 4 it had signed a letter of intent to fund its interests in China, but didn't identify the counterparty.

Both MIE Holdings and Sino Gas & Energy Holdings entered a trading halt early Monday pending a proposed corporate transaction.

Argonaut advised Sino Gas & Energy Holdings, while MIE didn't use a financial advisor. Argonaut's original mandate was to raise a minimum of A$25 million up to a maximum of A$40 million to fund 2012-2013 work program.

China is seeking to reduce its reliance on coal in its energy mix, which has made cities like Shanghai among the smoggiest in the world. This has driven an investment boom in alternative energy sources, including wind farms and solar projects.

Coal seam gas is a natural gas trapped in coal seams deep below the Earth's surface that produces no sulfur dioxide or particulates when burnt, and only 50% of the carbon dioxide emitted when coal is burnt.

It is usually either vented into the open air, or stays trapped underground – often to devastating effect, contributing to hundreds of coal mine deaths in China every year.

Analysts estimate China's coal seam gas reserves total more than 34 trillion cubic meters.

However, China's coal seam gas output has been held back by a combination of technical issues, regulatory hurdles, and high costs. Private investors often struggle to access major gas pipelines that are mostly controlled by state-owned PetroChina or China Petroleum and Chemical Corp., known as Sinopec.

In a blow to the country's energy officials, China in 2010 widely missed an annual target of 5 billion cubic meters initially established in its 11th Five-Year Plan. Its coal seam gas production pales in comparison to the U.S., which produces about 54 billion cubic meters annually.

Sino Gas & Energy's existing shareholders include Australia-listed mining services provider Imdex. Its project partners include subsidiaries of China National Petroleum Corp., the state-owned parent of PetroChina.

MIE owns stakes in the Daan, Moliqing and Miao 3 oil fields in the Songliao Basin in China's Jilin province, Kazakhstan and Weld County, Colorado.

An official at MIE Holdings declined to comment immediately.