Citic Resources Holdings, the oil and metals production and trading arm of state-backed mainland conglomerate Citic Group, has proposed a rights share issue to raise HK$2.52 billion to lower its debt and fund future investments. Shareholders would be entitled to three new shares for every 20 held, Citic Resources said in a statement to the stock exchange. The purchase price is HK$3.20 per share, a 27.7 per cent discount to last Friday's closing price of HK$4.43. Its shares have declined 3.9 per cent so far this year. 'The estimated net proceeds of the rights issue of HK$2.5 billion will enhance the financial condition of the company by improving its gearing ratio,' the company said, adding that the proceeds would be used for investments, as working capital and for general corporate purposes. At the end of last year, the company's net long-term debt to equity ratio stood at 124 per cent. It had loans of HK$1.96 billion and bond obligations of HK$7.63 billion. The rights issue could lower the ratio to 82.4 per cent. Analysts said the company had chosen to issue shares because it had little room to issue more debt as it was bound by creditors to debt covenants. Citic Resources raised HK$1.68 billion in February and April last year by issuing shares at HK$2.46 each, and a further HK$450.5 million in a separate share issue in July last year at HK$4.46 each. Given the company's heavy debt burden stemming from the US$1 billion acquisition of its parent's 47.3 per cent stake in Kazakhstan oil firm Karazhanbasmunai, analysts said it was unlikely that the rights issue would be used for acquisitions. 'I think it is an exercise to lower its high debt gearing and speed up the development of its oil projects, rather than to fund acquisitions as prevailing oil prices make acquisitions too expensive right now,' said Kim Eng Securities analyst Larry Grace.
