Citic Pacific to provide investors with details on 226.9b yuan asset deal

The mainland's largest conglomerate will offer details of valuations to justify purchases, which include stakes in Citic Bank and Citic Securities

PUBLISHED : Wednesday, 14 May, 2014, 1:20am
UPDATED : Wednesday, 14 May, 2014, 4:36am


Citic Pacific, the mainland's largest conglomerate and the Hong Kong-listed flagship of state-owned Citic Group, is expected to issue today a circular to its shareholders on its jumbo asset acquisition - the largest ever asset injection by a state firm into its Hong Kong-listed unit.

Investors will be provided details on how the assets' valuation was done to justify the deal's 226.9 billion yuan (HK$282.3 billion) price tag. Analysts said they would also seek more details on the non-listed assets to be bought, especially its properties business that contributed the bulk of its profit.

"I would like to see more details about its unlisted assets, especially the location, book values of its property projects, timing of acquisition of its land lots," said an analyst covering Citic Pacific. "Comments on the business outlook of the assets will also help us make profit projections."

Citic Pacific's directors will also give their opinion on the deal, based on the recommendations by an independent financial adviser.

Independent Citic Pacific shareholders are slated to vote on the deal on June 3, with completion expected by August 29.

Steel-to-property conglomerate Citic Pacific last month agreed to pay 226.9 billion yuan for a basket of assets from Citic Group, so that 99 per cent of the latter's assets will be under Citic Pacific.

They include a 66.95 per cent stake in Citic Bank and 20.3 per cent of the mainland's largest brokerage Citic Securities. Both are listed on the mainland and in Hong Kong.

Together, they accounted for 87.3 per cent of the net profit of the assets to be bought last year.

The 226.9 billion yuan was equivalent to the valuation estimated by independent valuer China Enterprise Appraisals, which is subject to approval by the Ministry of Finance.

About 49.9 billion yuan will be paid in cash, and the balance of 177 billion yuan will be paid by issuing new Citic Pacific shares at HK$13.48 each.

Since the agreement was unveiled, the shares never fell below HK$13.48, despite analysts' general bearish view on the stock, citing the acquisition price's lack of discount to net asset value.

"The stock seems to be well-supported ahead of the upcoming share sale, but the real test on its share price will come after the expiry of the lock-up period so the shares will be freely traded," the analyst said.

The asset injection will boost Citic Pacific's equity value fourfold, raise its return on equity to 13 per cent from 9 per cent, and lift net profit margin to 17 per cent from 10 per cent.

It will also cut Citic Pacific's financing costs and lift its credit rating, currently depressed by its loss-making Australian iron-ore mining project that is threefold over-budget, more than three years behind schedule, and is facing asset impairment pressure.