Charoen Pokphand Group, overseen by Thailand’s wealthiest man Dhanin Chearavanont, and Japanese trading firm Itochu, have through a joint-subsidiary offloaded their entire 1% stake in Citic Limited and raised $470 million in the process.
The share sale will allow CP Group and Itochu to proceed with a previously announced 20% stake purchase in Citic Ltd for $10.4 billion, as China’s state-owned giants open doors to more private capital.
CP Group and Itochu, through joint subsidiary Chia Tai Bright Investment (CT Bright), offloaded the 1% stake — or 249 million shares — in Citic Ltd at HK$14.73 per share, representing a 4% discount to the April 10 close. CLSA was the sole bookrunner on the deal, which was completed on Saturday night in Hong Kong.
Citic Ltd — the Hong Kong-listed company formerly known as Citic Pacific specialising in iron ore mining, property development and specialty steels — has been grappling to meet free-float requirements on the Hong Kong Stock Exchange, which it requires a minimum free float of 25%. With CT Bright offloading its 1% stake to a small group of investors, now Citic Ltd meets the exchange’s requirements, a source close to the deal told FinanceAsia.
There were 10 Asia-based institutional investors participating in the share-sale, making it akin to a club deal, the source said. It represented an average three-month daily turnover of 16 days.
The $10.4 billion deal
The $10.4 billion deal — which was announced in January and will be one of the largest into a Chinese SOE — will be structured in two stages. CP Group and Itochu will through CT Bright purchase a 10% stake in Citic Ltd from Citic Group for about $4.54 billion. The acquisition is targeted to be completed later this month.
Then, in several months, Citic Ltd will issue CT Bright convertible preferred shares that are convertible to 13.4% of the current voting rights for $5.9 billion in cash. The preferred shares will not carry voting rights, but will be converted to ordinary shares within three months of the acquisition, according to an Itochu presentation slide. The acquisition has a target-date of October.
The preferred shares and Citic Ltd shares will each be sold at HK$13.8 per unit.
Last year, Citic Ltd raised $6.9 billion by selling shares to 27 investors at HK$13.48 per unit to fund the acquisition of assets injected by its parent Citic Group.
Both Itochu and CP Group have strong ties with Citic entities and the mainland. In 2011, Itochu invested about $100 million in a Hong Kong asset management arm of Citic Group.
Chearavanont meanwhile also has strong ties with China. When China opened up the country in 1979, CP Group was one of the first foreign entities to invest in China, and was heavily involved in agricultural reform.
Last year, Itochu and CP Group formed an alliance to cooperate in animal feed, livestock and marine-related areas. CP Group is Thailand’s largest private company, and operates businesses in agricultural and food, retail and distribution, and telecommunications.
Saturday’s block comes after Hong Kong’s stock markets have sizzled in the past few days. Following the Easter holiday, the Hang Seng Index rallied to a seven-year high, briefly surpassing the 27,000 mark as Chinese investors continue to purchase H-shares via the Shanghai-Hong Kong Stock Connect. It rose 4% from April 8 up to April 10.
Citic Ltd’s shares are up 6% in the same timeframe.
It was the second block in Hong Kong last week, after Citic Capital Financial took advantage of a 20% two-day rise in China Cinda Asset Management to offload its entire stake and raise $140 million. CLSA jointly oversaw the deal along with Morgan Stanley.