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SCMP Reporter

Citic Pacific is selling the majority of its stake in CLP Holdings, ending prolonged conjecture about the future course of the 31-month relationship.

 At the end of a day of intense market speculation about a possible deal, the two companies last night said CLP was buying back a 15 per cent stake in the company from Citic for $12.78 billion.

 Citic, controlled by Beijing-based China International Trust and Investment Corp, which acquired a 20 per cent stake in January 1997, will retain a 6.26 per cent holding following the contraction in CLP's share capital.

 The sale slashes Citic's debt, which at the time of the June 30 interim results was $18.6 billion, and clears the way for it to declare a special interim dividend of $2 a share. The chairman, Larry Yung Chi-kin, as the second-biggest shareholder, will be a major beneficiary of the special payout.

 The transaction represents the effective end to a landmark relationship struck between a large mainland-controlled company and a key participant in a vital Hong Kong industry.

 It held the promise of privileged access for CLP to the mainland's power market but this failed to occur.

 Six months before the handover of authority to the mainland, the sale of the stake was also seen as part of a process which would guarantee Beijing a stronger grip on SAR business.

 Under yesterday's agreement, Citic is barred from selling its remaining stake until after March next year but, according to the directors' statement, it will be retained as 'a long-term strategic investment'.

 Citic said 'the excellent relationship' between the two sides would continue and the company would retain a seat in the CLP boardroom.

 However, industry analysts were yesterday unable to identify a single important benefit, in terms of expansion into the mainland power generation market, from the tie-up.

 'There was no momentum in this relationship and absolutely no original deals generated. It was dead money for Citic Pacific,' one analyst said.

 The shares were bought back by CLP at $34.80 a share, representing a 3.6 per cent discount to the company's closing price of $36.10 - down 20 cents on the day.

 It is a 4.1 per cent discount to the average closing price over the past five trading days.

 The shares were acquired for $32.66 but directors said no profit or loss would be entered into the accounts.

 The transaction will serve to answer questions about CLP's intentions with its massive cash pile, built up as the SAR's biggest and oldest integrated power utility.

 According to the company's September 30 balance sheet for last year, it held cash reserves of $14.78 billion.

 'Going forward, CLP will continue to pursue its strategy of optimising the performance of its core Hong Kong utility operations and growing its portfolio of power projects outside Hong Kong through selective acquisitions and new ventures,' acting chairman William Mocatta said.

 Following completion of the transaction, the company's biggest shareholder - the Kadoorie family - will see its stake increase from 23.25 per cent to 27.35 per cent.

 The offer expires on October 8 and shareholders will be able to vote on the sale at an extraordinary general meeting on October 31.



SAR firm's hope of access to mainland power market dashed as it buys back 15pc