Itochu, Thailand’s Charoen Pokphand buy 20 per cent stake in Citic Limited
Deal reflects Beijing's efforts to encourage private ownership of state-owned firms
Japanese trading giant Itochu and Thailand's Charoen Pokphand Group (CP) are buying a 20 per cent stake in Citic, China's largest conglomerate, for HK$80.3 billion.
The deal, signed yesterday, is an example of Beijing's efforts to reform state-owned enterprises by diversifying their base of shareholders to include more private and overseas investors.
"Citic has strong government backing and access to funding, but lacked experience in overseas investment and was prone to paying too much for assets," said Christfund Securities research director Simon Lam Ka-hang. "Itochu and CP can provide expertise and share risks overseas."
Citic said it would use the proceeds to develop its businesses, invest in emerging opportunities in sectors well matched to its development and that of China, and as additional working capital for daily operations.
The state-owned conglomerate learned about overseas investment the hard way after seeing its US$10 billion iron ore mining project in Western Australia suffer major cost blowouts and construction delays.
It warned earlier that its 2014 profit would be lower due to an impairment of between US$1.4 billion and US$1.8 billion on its Australian Sino Iron mining project.
Itochu, a major distributor of steel and iron ore, has mining joint ventures with BHP Billiton in Western Australia and a stake in Brazil's Nacional Minerios.
CP is led by Thai billionaire Dhanin Chearavanont, whose family comes from southern China. It is Thailand's largest private company and one of the biggest in Southeast Asia.
Itochu and CP will acquire the Citic stake through a 50-50 joint venture, Chia Tai Bright Investment (CT Bright), at a price of HK$13.80 a share, a 3.6 per cent premium to Citic's closing price on Monday of HK$13.32.
CT Bright will first buy 10 per cent of Citic from Citic Group for HK$34.4 billion. Several months later, Citic will issue 3.33 billion convertible preferred shares to CT Bright for HK$45.9 billion in cash.
"This investment is a continuation of our reform and globalisation that began last year when we transformed from Citic Pacific to Citic, a Hong Kong-listed company and the largest conglomerate in China," Citic chairman Chang Zhenming said.
Citic sold shares to 27 investors including CP last year as it bought US$37 billion of assets from its parent as part of central government reforms aimed at encouraging greater private ownership of state-owned enterprises.
Citic's shares closed at HK$13.52 yesterday, up 1.5 per cent.
