Citic Resources sells shares amid hopes for Kazakhstan deal

Two cornerstone investors help the $221 million deal get off the ground, while strong demand for the remaining portion sees the order book close after just two hours.
Citic Resources Holdings was in the market Friday, raising HK$1.72 billion ($221 million) from a placement of new shares. The deal, which came as the share price reached its highest level since March 2000, was launched just before noon and closed after just two hours when the book was already more than 20 times covered.

Joint bookrunners Citigroup and UBS had initially planned to keep the offer open until the early evening, according to investors, but faced with such strong demand they saw no need to drag it out - especially since the quality of the orders received by then allowed the price to be fixed at the top end of the indicated range.

The interest likely stemmed from the fact that Citic Resources has a one-year option to acquire a Kazakhstan oil field from its parent company China International Trust & Investment Corp, which would make it ChinaÆs fourth largest oil company after PetroChina, Sinopec and CNOOC. Citic Resources, which is a provider of natural resources and commodities, including aluminium smelting and coal mining, also bought 51% of an oil production asset in Indonesia last year, which shifted its focus more towards upstream exploration and production.

ôMost investors would have bought into the deal on the assumption that the company will exercise the option on the Kazakhstan oil project, even though the company only said that the proceeds will be used to fund new investments in the natural resources and energy sectors,ö one observer says.

The placement was also helped off the ground by two unidentified cornerstone investors, who according to sources took about half the deal and helped the bookbuilding to gain momentum. The 20 times subscription ration was calculated based on the remaining half of the deal. The inclusion of cornerstones might initially have been deemed necessary since Citic Resources wasnÆt a widely held stock by international investors prior to this placement with only a handful of accounts said to have had a sizeable investment.

That will change after this placement, however, which attracted just under 100 accounts. Given the timing of the deal, in the middle of the Asian business day, most of the investors were obviously Asian, although overnight US desks were said to have contributed a couple of orders and there was also some demand from Europe.

The shares were offered at a price between HK$2.33 and HK$2.46, which translated into a 5%-10% discount versus ThursdayÆs close of HK$2.59. It was fixed at the top of the range for a 5% discount. (The stock was suspended on Friday to conduct the placement.)

The discount looks reasonable given that transaction accounted for 13.9% of the existing issued share capital and 16.2% of the company after the deal. In terms of daily trading the deal accounted for about 30 daysÆ worth of trading volumes. Also, the share price rallied 11.6% the day before the placement, making up for the entire discount twice over.

The parent company agreed to buy a 94.6% stake in the Kazakhstan oil field from CanadaÆs Nations Energy in October last year and completed the purchase in December. As part of the approvals process for the acquisition, the CITIC Group granted Kazakhstan stated-owned oil company KazMuniaGaz National Co. an option to buy a 50% stake in the project for $955 million.

The oil field has proven reserves in excess of 340 million barrels (bbl) of oil and a current production of more than 50,000 bbl/day.

Citic Resources has placed $200 million towards the potential acquisition in earnest with CITIC Group.
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