Citic Pacific has agreed to buy almost all of its parent's assets not already under the Beijing-backed steel-to-property Hong Kong-listed firm for 227 billion yuan (HK$284.8 billion), which would make it the second-largest listed conglomerate in Greater China after the Li Ka-shing-led Hutchison Whampoa.
It is the largest asset injection deal by a red chip - a Hong Kong-registered company holding mainland state-owned assets. Citic Pacific will pay for the injected assets by issuing shares worth 177 billion yuan to Citic Group, and 50 billion yuan by shares sold to institutional investors.
Chang Zhenming, chairman of Citic Pacific, called it a landmark "win-win" deal for Citic Pacific's shareholders and Citic Group, China's first overseas investment vehicle set up in 1979 by former vice-president Rong Yiren with support from the late paramount leader Deng Xiaoping.
"The complete listing of Citic Group in Hong Kong, a landmark innovative move, helps advance state-owned enterprise reform," he told reporters. Citic Pacific has signed an agreement to buy 100 per cent of direct parent Citic Limited, which holds 99 per cent of ultimate parent Citic Group's assets.
Citic Pacific president Zhang Jijing said the remaining 1 per cent consists of a stake in Shenzhen-listed cable television operator Citic Guoan Information, and some early-stage environmental protection businesses.
The acquisition price, assessed by China Enterprise Appraisals at the end of last year, represents a 0.8 per cent premium to the audited book value of the assets to be injected.
They include 66.95 per cent of listed Citic Bank, 20.3 per cent of listed Citic Securities, an 88.4 per cent holding in unlisted Citic Real Estate, all of unlisted Citic Construction, 59.4 per cent of listed Citic Resources, 71 per cent of listed Citic Heavy Industries, 18.4 per cent of listed Citic Telecom International and 37.6 per cent of listed Asia Satellite Telecommunications, among other assets.
The deal would raise Citic Pacific's annual net profit sixfold to HK$48 billion and net assets fourfold to HK$372 billion. Although the Citic Bank stake accounts for 62 per cent of Citic Limited's net assets as estimated by a Jefferies Securities report, and the bank's shares trade at 0.75 times book value - much below the minimum one time ratio required by Beijing for state asset transfers - Chang said the overall market value of Citic Limited estimated by Citic Group and China Enterprise is over the threshold.
Chang sidestepped a query on whether Citic Limited deserves a "conglomerate discount" to its book value, as analysts said investors wanting exposure to Citic Bank could buy its shares directly at a cheaper price than via Citic Pacific. But he said the asset injection would "add value" to Citic Pacific since its credit rating - currently depressed by its loss-making Australian iron ore mining project that is threefold over-budget and more than three years behind schedule - would get a lift.
Chang said Beijing has given special permission for the injection of the bank stake, which is higher than the ownership ceiling imposed on overseas firms. He said the injection was considered a "very substantial acquisition" under Hong Kong listing rules, and not a reverse takeover or a new listing subject to more stringent regulatory scrutiny.