Citic Pacific To Buy Parent Company's Main Unit In $36.5 Bln Deal

(RTTNews) - Hong Kong-listed Citic Pacific Ltd. (CTPCF.OB, CTPCY.PK) said Wednesday that it has agreed to buy the main operating unit of its Chinese state-owned parent company Citic Group Corp. for RMB226.93 billion, or $36.5 billion, in cash and stock.

Citic Pacific noted that the deal will provide its shareholders with direct exposure to one of China's largest, multi-industry conglomerates and also enlarge its capital base. Citic Group is a state-owned enterprise that was established in 1979. It was restructured and transformed to a solely state-owned company in 2011 and changed its name to Citic Group Corp.

Citic Group is engaged in businesses covering financial services, resources and energy, manufacturing, real estate and infrastructure, and engineering contracting. Citic Limited, the main operating unit of Citic Group, comprises substantially all of the assets of the parent company.

The deal, the biggest asset infusion by a Chinese company into a Hong Kong-listed unit, is also seen as an attempt by the Chinese government to move assets of state-owned companies into public listed companies in order to improve corporate governance and operating efficiency.

Citic Pacific has businesses in special steel, iron ore and real estate development in mainland China. Under the deal, Citic Pacific will acquire 100 percent of Citic Ltd.

Citic Pacific will issue 16.58 billion shares to Citic Group priced at HK$13.48 per share, amounting to HK$223 billion, or RMB177 billion. In addition, the company will pay RMB49.92 billion in cash.

Further, Citic Pacific will sell new shares to institutional investors with a proposed value of RMB50 billion, to comply with the Hong Kong stock exchange's requirement to maintain a public free float between 15 and 25 percent.

The company noted that the new shares to be issued to institutional investors, together with shares to be issued to Citic Group, shall not exceed 21.25 billion shares.

Hong Kong's stock exchange requires companies to have at least 25 percent of their outstanding shares freely traded, though the limit can be reduced to 15 percent for firms with market capitalization of more than HK$10 billion or $1.3 billion.

The deal is subject to approval by Citic Pacific's shareholders at an extraordinary general meeting on June 3, 2014, in addition to approval from regulatory bodies.

The company expects to complete the deal by August 29, 2014. Following the completion of the transaction and share sale, Citic Group will own 75 percent of the enlarged share capital of Citic Pacific.

Citic Pacific, which has proposed to change its name to Citic Ltd. after the completion of the deal, noted that the acquisition would increase its unaudited pro forma net profit for calendar year to HK$48.43 billion if the transaction had been completed by December 31, 2013.

Further, Citic Pacific noted that the acquisition will broaden its debt financing channels, enabling it to use Citic Ltd. to raise debt financing through various bond products and channels in China's domestic securities market.

Citic Pacific expects the enhanced financing capability will enable it to continue the funding of existing capital intensive projects such as the Sino Iron iron-ore project in Western Australia.

Citic Pacific's shares closed Wednesday's trading session on the Hong Kong Stock Exchange at HK$14.30, down HK$0.24 or 1.65 percent on a volume of 13.89 million shares.