AGL had offered to underwrite $30 million of convertible notes due in April and June, which are out of the money.

But under the agreement, AGL can now exercise the options to acquire part or all of Sydney Gas' remaining 50% stake in the Camden Gas Project joint venture.

The joint venture arrangement, which gave AGL 50% of the Camden operation for an upfront payment of $42.25 million, was considered by many Sydney Gas shareholders to be a bad deal for the CBM player.

The deal was the last straw for many shareholders who were unhappy with the management style of chairman Michael Knight. Knight and the rest of the board resigned en masse after a tense and hostile annual general meeting last month.

But AGL has said the deal is legally binding and the new board of Sydney Gas has indicated it will not try to extricate the company from the contract.

As of November 30, Sydney Gas had $25.7 million in cash. Options for financing the convertible notes include a shareholder rights issue or a takeover bid for the company.

Sydney Gas shares closed at 26.5 cents last Friday. The convertible notes are redeemable at 60c a share.