UPDATE 2-CITIC Group plans HK listing by reversing into CITIC Pacific

Wed Mar 26, 2014 11:40am EDT

* CITIC Group to sell main operating arm to CITIC Pacific unit

* CITIC Pacific to issue shares at 6.5 pct premium to Monday's closing price

* Combined group valued at about $42 bln (Adds details of CITIC Pacific deal, CITIC Group's history, listed subsidiaries)

HONG KONG, March 26 (Reuters) - Chinese state-owned conglomerate CITIC Group Corp plans to list its main operating arm in Hong Kong by reversing into its CITIC Pacific subsidiary in a deal valuing the combined listed group at $42 billion.

Steel-to-property conglomerate CITIC Pacific, which is listed in Hong Kong, will purchase 100 percent of CITIC Ltd, the conglomerate's main operating arm, using a combination of new shares and cash, it said in a securities filing on Wednesday.

CITIC Pacific will issue an undisclosed number of shares at a price of HK$13.48 each, equivalent to a 6.5 percent premium to its Monday close of HK$12.66, subject to a definitive agreement.

CITIC Ltd had total equity of about 225 billion yuan ($36.3 billion) at the end of 2013. Together with CITIC Pacific's equity valued at $5.96 billion, the combined listed group would be worth $42.3 billion, making it the biggest backdoor listing ever in Hong Kong.

CITIC Group's move to Hong Kong is the most significant step taken by a central government-controlled enterprise in the current campaign to further restructure its state-owned companies.

CITIC Pacific said that once the acquisition is complete it "will be a stronger company through a much enlarged shareholders' equity, broader range of businesses and deeper managerial skills. These will enhance its competitiveness and ability to capture the economic growth opportunities in China."

CITIC's businesses in China range from real estate, to banking, securities, infrastructure, energy, natural resources and engineering, among others, and made a net profit of 34 billion yuan in 2013, the filing said.

Shares of CITIC Pacific have been suspended since Monday at the request of the company pending an announcement, the company said in a regulatory filing at the time. The shares will resume trading on Thursday.

CITIC Group, China's biggest and oldest financial conglomerate, had been planning a Hong Kong initial public offering back in 2011. In December that year it completed a restructuring of its holdings ahead of a planned listing. At the time, the share offering was valued at more than $10 billion.

CITIC Group is China's flagship investment company, established in 1979 at the direction of leader Deng Xiaoping. It was set up by Rong Yiren, one of the few industrialists to stay behind in the mainland after the 1949 revolution.

Caixin magazine, citing an unnamed source with knowledge of the situation, said on its website the listing "has already been given a pass" by the China Securities Regulatory Commission.

CITIC Securities International, the group's Hong Kong-based brokerage and investment banking unit, will act as financial adviser on the deal, Thomson Reuters publication IFR reported.

CITIC has stakes in numerous listed companies, including CITIC Pacific, CITIC Securities , CITIC Guoan Information, and CITIC Heavy.

It also has a stake in China CITIC Bank , which has a market value of $31.8 billion.

Over the last 20 years, China has gradually introduced private investment and Western-style management to its state firms and turned the country's biggest government conglomerates into stock market-listed shareholdings.

Beijing's state-owned enterprises (SOEs) owned 378 subsidiaries trading on global stock markets by the end of 2012. Provincial and local government firms had listed another 681 companies by the end of last year.

Critics say the sheer size and market dominance of big state firms creates a drag on the economy through vast opportunities for waste and corruption. State-owned companies enjoy privileged access to low-cost credit and draw more than 35 percent of total bank loans. ($1 = 6.2024 Chinese Yuan)

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