After Citic, who’s next among Chinese state firms to take their mega deals to Hong Kong?
Investors await second state firm to follow in footsteps of Citic's asset shuffle but conflict of interests between city officials may stall reform
George Chen and Sandy Li
Investors are keenly watching for the next state-owned enterprise to follow in the wake of Citic’s ground-breaking restructuring, in which Citic Pacific will mount a US$36 billion reverse takeover of its parent.
It might take a while.
The speed with which the Citic deal was planned before it was announced last week took many state company executives and government officials by surprise, sources said.
Such a major restructuring of a state enterprise would typically involve many parties, they said. One possible conflict that could hold up the process might be between the interests of the central and local governments.
While Beijing has been pushing for reform in the state-run sector, officials with power bases in cities such as Shanghai may be inclined to march to their own tune.
Two sources cited the case of Hong Kong-listed Jin Jiang Hotels - a subsidiary of Shanghai's Jin Jiang International, a major state-owned tourism operator - which was once considered an ideal platform to receive major asset injections from its parent firm, paving the way for a listing of the parent in Hong Kong.
But the idea was opposed by the city's officials in charge of state assets as they wanted to keep tight control of the group. Its Jin Jiang Hotel is the venue where the historic 1972 Sino-US communiqué was signed.
Shanghai provides another example of a state enterprise that is reluctant to follow in Citic's footsteps.
The city's Shanghai Industrial Group is unlikely to make such a massive injection of assets into its listed units or list in Hong Kong because 80 per cent of its assets are already in its five listed subsidiaries. Wang Wei, the chairman of its Hong Kong-listed unit Shanghai Industrial, said: "We are different from Citic. We won't have such large asset injections."
"The difference between Beijing and Shanghai SOEs is Beijing firms are closer to the regulators and senior officials at the central government level. They are more willing to take orders from the government for reform or test," said one source. "Those in Shanghai always have their own 'small calculations', which is quite understandable."
The Yangtze River Delta, one of the wealthiest and most developed regions - encompassing Zhejiang and Jiangsu provinces and Shanghai - accounts for about 20 per cent of the nation's annual economic growth.
Poly Group, like Citic which is based in Beijing, has apparently shown interest in restructuring in the footsteps of Citic. Poly has two major listed arms - Poly Property in Hong Kong and Poly Real Estate in Shanghai.
Zhu Mingxin, a director of Poly Real Estate, said on Tuesday his firm would "seek co-operation or even merger" with Poly Property.
Poly Property came under the spotlight after it paid a higher-than-expected HK$3.92 billion for its first residential site in Kai Tak this year.
Speculation arose over whether the Hong Kong unit would receive parental assets to boost its capital. Poly Group, which has businesses ranging from weapons trade to art auctions, has assets of nearly 400 billion yuan (HK$500 billion).
Wang Dongming, the chairman of Citic Securities, which advised Citic on its restructuring, said the deal made the parent firm a pioneer in supporting and implementing the policy of "diverse ownership".
Wang said Citic's move had deep significance for the mainland's further economic opening up and reform.
Li Kwok-suen, a fund manager at Phillip Capital Management, said: "It is a guessing game who will be next. Citic Pacific's deal is to test the market waters."
Additional reporting by Ray Chan and Toh Han Shih