Tags: Citic Pacific | China | Hong Kong | Steel maker

Citic Pacific to Pay $36 Billion for Parent's China Assets

Wednesday, 16 Apr 2014 07:42 AM

Citic Pacific Ltd. agreed to pay 226.9 billion yuan ($36 billion) in stock and cash to buy businesses from its state-owned parent in the biggest asset injection into a Hong Kong-listed unit from China.

The steelmaker and property developer will pay 49.9 billion yuan in cash and issue almost 16.6 billion shares at HK$13.48 each, according to a Hong Kong exchange filing. Citic Group Corp. will hold 75 percent of Citic Pacific following the transaction and a share sale by the Hong Kong company, it said.

The transaction comes as Chinese President Xi Jinping advocates the most sweeping changes since Deng Xiaoping’s liberalization in 1978, including loosening yuan trading and allowing more private investments in state businesses. The deal gives Citic Pacific a stake in China’s largest brokerage, as well as banking, energy and infrastructure assets.

“The mainland government wants to list most of the state- owned enterprises’ assets into public companies in order to improve corporate governance and operating efficiency,” Kenny Tang, general manager of Hong Kong-based AMTD Financial Planning Ltd., said by phone. “It’s quite a good effort to improve efficiency.”

Citic Pacific said on March 26 that it plans to acquire its parent’s main operating unit, Citic Ltd., for an undisclosed amount. Citic Ltd. has shareholder equity of 225 billion yuan and holdings in companies including Citic Securities Co. and China Citic Bank Corp.

Shares of Citic Pacific, which will be renamed Citic Ltd., have climbed 13 percent since March 24, when trading in the stock was suspended for an announcement about the transaction. The rally gave it a market capitalization of HK$52 billion ($6.7 billion) by the end of trading today. The deal will be completed by Aug. 29, the company said.

Better Governance

Citic Group, China’s first state-owned investment corporation, was set up in 1979 as part of Deng’s push to modernize and open up the state-controlled economy.

Moving the assets to Hong Kong may help improve corporate governance for the Beijing-based group, Kenneth Ho, a Hong Kong- based analyst at Goldman Sachs Group Inc., wrote in a March 31 note.

Citic Group is not alone among Chinese state-owned enterprises in preparing to sell assets to private investors. China Petroleum & Chemical Corp., the refiner known as Sinopec, said in February that it plans to sell as much as 30 percent of its oil retail unit. PetroChina Co. may allow private investment in areas including pipelines and gas exploration, Chairman Zhou Jiping has said.

Asset Injection

At $36 billion, the Citic deal would top China Mobile Ltd.’s $32 billion purchase of seven wireless networks from its parent to be the largest such asset injection into a Hong Kong unit by a Chinese company, data compiled by Bloomberg show.

The Citic transaction serves as a boon to Hong Kong after China’s largest e-commerce company, Alibaba Group Holding Ltd., abandoned plans to list in the city and said it will conduct its initial public offering in the U.S.

Citic Pacific owns the Sino Iron project in Western Australia, a $9.9 billion-magnetite iron ore mine that made its first shipment in December after delays and cost overruns. Citic Pacific said last month it faces pressure to write down the value of the project, which is the single largest foreign mining investment by a Chinese company.

Its 2013 profit climbed 9 percent to HK$7.6 billion, even as losses at the iron-ore unit doubled.

Share Sale

The asset purchase will reduce a public float that currently stands at 42 percent, according to data compiled by Bloomberg. Hong Kong’s stock exchange requires companies to have at least 25 percent of their outstanding shares freely traded, though the limit can be reduced to 15 percent for firms with market capitalization of more than HK$10 billion.

The company will sell 4.68 billion shares to raise funds for the transaction and to restore its public float, according to the filing.

About 50 billion yuan will be raised from selling new shares to institutional investors, the companies said in a statement.

More shareholders and an improved credit profile following the transaction may give Citic Pacific more flexibility in raising funds, Janet Lu, a Hong Kong-based analyst at Goldman Sachs, said in a March 27 note.

“It is positive for the listed company because the new assets injected into the company can generate more than HK$30 billion to HK$40 billion a year,” AMTD’s Tang said. “It mitigates cashflow problems at the listed company.”

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Citic Pacific Ltd. agreed to pay 226.9 billion yuan ($36 billion) in stock and cash to buy businesses from its state-owned parent in the biggest asset injection into a Hong Kong-listed unit from China.
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Wednesday, 16 Apr 2014 07:42 AM
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