* Tie-up includes sale of 4.9 percent stake in Itochu to CP
* Size of stake rare in strategic deals with non-Japanese
* Itochu to buy 25 pct stake in Hong Kong-listed C.P.
(Adds details on CP Group, comments from Itochu, analyst)
TOKYO/BANGKOK, July 24 Japan's Itochu Corp
entered into a $1 billion tie-up with Thai billionaire
Dhanin Chearavanont's Charoen Pokphand Group (CP) to target
rising demand for meat and livestock products in China and other
parts of Asia.
The tie-up involves the sale of a stake in one of Japan's
oldest trading houses to a non-Japanese investor. The size of
the stake, at almost 5 percent, is relatively huge for strategic
deals between Japanese trading houses and foreigners.
Itochu is cementing ties with a group that has operated in
China for more than three decades. Through the tie-up, Japan's
third-largest trading house can expect to deepen its already
significant presence in China.
Last year, the trading house paid $1.7 billion for two Dole
Foods units. It also has a stake in a major Chinese food
"It sits well with Itochu's business because Itochu has a
very good pipeline in the region," said Thanh Ha Pham, an
analyst at Jefferies who covers Japanese trading houses.
"Also, the non-resources business has much less volatility
than the resources business... so this lowers the volatility of
Itochu," said Pham, who has a "buy" rating on the company.
Itochu said it will sell 102.4 billion yen ($1.01 billion)
of shares, equal to a 4.9 percent stake, to two units of Charoen
Pokphand. One of the units has the Development Bank of Japan as
The transaction - which will make the Thai group Itochu's
third-biggest shareholder - prices the shares at 1,313 yen. That
compares with the market closing price on Thursday of 1,315 yen.
The funds raised by Itochu will mostly be used to buy a 25
percent stake in Hong Kong-listed C.P. Pokphand Co (CPP)
from Charoen Pokphand Foods PCL (CPF). Both
companies are units of Charoen Pokphand Group.
"CPP's main businesses are in China, so our main target
through this alliance is China," Koji Takayanagi, senior
managing executive officer at Itochu, told reporters.
Itochu is expecting a net profit contribution of 4-5 billion
yen a year from the investment in CPP, with an aim to boost that
to 10 billion yen in the long term.
The rest of the proceeds from Itochu's share issue will be
used as funds for investment and general spending on joint
businesses in Asia.
Itochu said it will buy back as many as 78 million of its
own shares - the same amount to be issued to Charoen Pokphand
group - to avoid shareholder dilution.
The deal also highlights the Thai billionaire's efforts to
trim his debts and to secure an alliance with one of Japan's
leading trading houses to help grow its food business in China.
Dhanin's CP group leverage soared after taking billions of
dollars of loans for its acquisitions, which include the $6.6
billion purchase of Siam Makro last year and the $9.4
billion acquisition of HSBC's stake in Ping An
Insurance in 2013.
The 27.4 billion baht ($860 million) in proceeds from the
CPP stake sale will be used mostly to repay debt, CPF said in a
statement on Thursday.
After the sale, CPF and CP group will own 50.4 percent of
CPP, which runs 80 animal feed plants in 28 provinces in China.
CPP also operates in Vietnam.
Analysts expect CPF to book a gain of about 2.3-2.5 billion
baht from the sale of its stake in CPP.
CPF Chief Executive Adirek Sripratak said in March that CPF
planned to reduce its holding of CPP to help lower its net
debt-to-equity ratio to below 1 over the next three years.
CP group, which has businesses in China for more than 30
years, has branched out from seed into feed, farms, grain
trading and to retail, real estate, auto and telecommunication.
It has also expanded into Indonesia, Vietnam, India and Turkey.
($1 = 101.4600 Japanese Yen)
(Reporting by Yuka Obayashi in TOKYO and Khettiya Jittapong in
BANGKOK; Additional reporting by Aaron Sheldrick; Editing by