Citic Pacific unveils star backing for landmark deal

Conglomerate says 15 government funds and institutional investors will subscribe for shares to help pay for parent company's injection

PUBLISHED : Thursday, 15 May, 2014, 1:43am
UPDATED : Thursday, 15 May, 2014, 1:43am


Citic Pacific has reached agreement with 15 government funds and leading institutional investors to subscribe for HK$39.5 billion of shares it will issue to finance the acquisition of its parent company's assets, which is billed as a landmark deal that will help advance state enterprise reform on the mainland.

About HK$16.8 billion, or 42.5 per cent, of the shares had been taken up by the mainland's largest pension fund, the National Social Security Fund, the steel-to-property conglomerate said.

Safe Investment, the Hong Kong fund management unit of the State Administration of Foreign Exchange, has agreed to buy HK$4.65 billion of the shares, while Qatar Holding will subscribe for HK$1.56 billion worth and Singapore's Temasek will acquire a HK$780 million stake. Qatar Holding and Temasek are sovereign funds.

The biggest commercial purchases are HK$3.9 billion from China Life Insurance and HK$2.3 billion from insurance giant AIA.

There is also a HK$1.95 billion investment from Bank of China, HK$1.56 billion from Agricultural Bank of China, and HK$1.17 billion each from China Construction Bank and Industrial and Commercial Bank of China.

Other investors include Taiwanese insurers CTBC Life Insurance and Fubon Life Insurance, Japan's Tokio Marine & Nichido Fire Insurance and Mizuho Bank, and state-owned Beijing Infrastructure Investment.

Despite the 227 billion yuan price tag and lack of a discount to the book value of assets being bought by Citic Pacific, Somerley Capital, the independent financial adviser to the company's minority shareholders, said it was "fair and reasonable" after reviewing a report by independent valuer China Enterprise Appraisals.

This is despite Somerley's noting the acquisition would see Citic Pacific's net asset value per share drop to HK$14.93 from HK$24.09, since the new shares will be sold at HK$13.48, resulting in a 38 per cent dilution in net asset value.

Analysts said listed conglomerates normally traded at a discount to the sum of market values of their listed assets and book values of their unlisted assets. This is because investors have the alternative of investing in the listed assets directly.

"While conglomerates normally deserve a discount, Citic Pacific's situation is different given the acquisition will raise its profit [by ninefold], helping to offset the higher valuation of assets acquired," said AMTD Financial Planning general manager Kenny Tang Sing-hing.

While Citic Pacific chairman Chang Zhenming earlier billed the transaction as an unprecedented deal that will help drive state enterprise reform by exposing all but 1 per cent of Citic Group's assets to public and stock market regulatory scrutiny, Tang said one should not expect changes on the way they were managed.

"While Beijing decided [last year] that market forces should play 'a decisive role' in shaping the economy, the mainland is still a socialist nation," he said.

On the adoption of market-oriented methods in top management appointments and compensation, after the asset injection, Chang last month said the management would "try its best" to get Beijing's approval for a share-based staff bonus scheme, and top management appointments would be more "market-oriented".

Citic Pacific shares yesterday rose 1.3 per cent to HK$13.90.