Citic Pacific Ltd., which is acquiring $36 billion of assets from its state-owned Chinese parent, agreed to sell $5.1 billion of shares to investors including the country’s social security fund.
The National Social Security Fund will buy HK$16.8 billion ($2.2 billion) of shares and China Life Insurance Co. will invest $500 million, the steelmaker and property developer said in a Hong Kong stock exchange filing yesterday. Other investors include the state investment firms of Qatar and Singapore, the filing shows.
Citic Pacific’s transformation comes as Chinese President Xi Jinping advocates the most sweeping changes since Deng Xiaoping’s liberalization in 1978, including loosening yuan trading and allowing more private investments in state businesses. The deal, which is the biggest asset injection into a Hong Kong-listed unit from China, may become a model for similar moves by government-controlled companies.
“We continue to view the new Citic to be a good proxy for the Chinese economy,” Jefferies Group LLC analysts Christie Ju and Larry Cho wrote in a report. “We expect minority shareholders to support the acquisition, and expect new Citic to become the largest and potentially the most profitable Chinese conglomerate in the Hong Kong market.”
Citic Pacific rose 0.1 percent to HK$13.92 at 2:04 p.m. in Hong Kong trading. The stock has advanced 10 percent from when it first announced plans for the asset purchase on March 26.
Citic Pacific, which will be renamed Citic Ltd., is raising funds to pay for the acquisition and restore its public float. The company said last month it will buy assets from parent Citic Group Corp., the country’s first state-owned investment corporation, ranging from financial services to energy and property.
AIA Group Ltd., the second-largest Asia-based insurer by market value, will buy $300 million of shares, and a company controlled by Agricultural Bank of China Ltd. will invest $200 million. An investment arm of Bank of China Ltd., the country’s fourth-largest lender, has committed $250 million. Taiwan’s CTBC Life Insurance Co. will take HK$808.8 million of stock.
Citic Pacific is selling 2.93 billion shares at HK$13.48 each to 15 investors, according to the filing. The sale price represents a 3 percent discount to yesterday’s closing price in Hong Kong.
The company said in April it will fund almost 80 percent of its acquisition by selling about HK$223 billion of new shares to Citic Group. The remaining HK$63 billion will be paid in cash.
Citic Pacific plans to issue 16.58 billion shares to its parent company at HK$13.48 each, according to an April exchange statement. The Hong Kong stock exchange has granted a waiver allowing Citic Pacific to have a public float of at least 15 percent, rather than the usual 25 percent, the statement shows.
Financial-services holdings, including stakes in Citic Securities Co. and China Citic Bank Corp., accounted for 87 percent of pretax profit for the unit last year. Real estate, infrastructure and engineering assets accounted for most of the rest.
The purchase price represents 0.9 times the combined company’s 2013 book value and 6.9 times last year’s earnings, according to an April company presentation. The deal will be completed by Aug. 29, it said.