Citic Resources Holdings, the oil and non-ferrous-metals arm of state-backed conglomerate Citic Group, plans to raise HK$2.5 billion through a rights shares issue to cut debt and fund future investments.
Despite major paper losses on its investment in Citic Resources, major shareholder Temasek Holdings, Singapore's sovereign wealth fund, has joined Citic Resources in committing to buy any rights shares not taken up by independent shareholders.
The Hong Kong main-board-listed firm yesterday said it aimed to sell 1.82 billion new shares at a ratio of three rights shares for every 20 existing ones. The price is set at HK$1.38 per share, a 25.8 per cent discount to the previous closing price. The stock sank 9.7 per cent to close at HK$1.68 after the announcement.
Citic Resources said the proceeds would improve the company's debt ratio, fund future investment and bolster working capital, but did not provide a breakdown.
This is the firm's second rights issue in three years. In June 2008, it also raised HK$2.5 billion. Then, it sold three rights shares for every 20 existing shares, at HK$3.20 each.
The proceeds of that issue were used the same way as the current rights issue is intended. Citic Resources said the new rights issue did not require independent shareholders' approval.
The company's net debt-to-equity ratio stood at 98 per cent at the end of last year. Assuming its debt and cash positions have not changed since, the share issue would see the ratio fall to 58.9 per cent, according to calculations by the Post.
The company will probably use some of the proceeds to bring its Yuedong oilfield to production, and acquire oil assets in Africa, said UOB Kay Hian Securities analyst Shi Yan.
Citic Resources CEO Zeng Chen said in March that the company had budgeted US$176 million this year for its share of the development of its 90 per cent-held Yuedong offshore oilfield in northern China.
A delay in Yuedong's development last year due to freezing weather meant an annual peak output of 1.5 million tonnes would not be reached until 2015. Previously, Citic Resources planned a peak output of 1.8 million tonnes for the field in 2014.
Former chief executive Sun Xinguo said in March last year the firm was spending a lot of time and energy on oil acquisition targets in Africa, Central Asia and Southeast Asia.
Shi said Temasek had probably looked past the field's problems and was pinning its hopes on Yuedong's output growth.
Temasek's average investment cost in its 693.78 million shares in Citic Resources, an 11.47 per cent stake, was HK$3.42, based on calculations by the Post, using stock exchange ownership disclosure data, a paper loss of 45.6 per cent.
Citic Resources announced a rights shares issue to cut debt
The news sent shares, in HK dollars, in the oil and non-ferrous-metals arm of Citic Group falling 9.7 per cent to: $1.68