Citic Pacific has moved closer to completing the purchase of Citic Ltd from its parent Citic Group for Rmb227 billion ($36.4 billion) after raising HK$39.5 billion ($5.1 billion) by selling 2.932 billion shares to 15 strategic investors.
Citic Pacific, a Hong Kong-listed company specialising in iron ore mining, property development and specialty steels, planned to fund the acquisition of Citic Ltd with Rmb50 billion in cash and via a massive Rmb177 billion new share issue to Citic Group, according to a company announcement issued in April.
To fund the acquisition, it also planned to raise Rmb50 billion through a new share placement with institutional investors, the company said. However, the shares sold to 15 strategic investors of $5.1 billion only account for 62% of the original placement plan of Rmb50 billion ($8 billion).
Contrary to some media reports that the company has aggressively cut the placed shares by 38%, the company will continue to sell more new shares to institutional investors, according to two sources familiar with the situation.
After the share sale to 15 strategic investors, Citic Pacific will maintain a public float of 17.78% of the total share capital, exceeding the minimum requirement, which is 15%.
The company intends to sell more because it wants to maintain a healthy share liquidity above the minimum, said one source. The total number of the new placed shares has yet to be confirmed but sources said 20%-25% is a target.
“Investor sentiment to the shares has been stellar. In addition to the 15 investors, many institutional investors are interested in the deal,” said another source, who agrees that the big names of this round are expected to add more momentum to the share placement.
The company will keep contacting investors and sign more share placement agreements with them by August 29, the expected deadline of the completion of the whole acquisition, said one source.
Among the 15 strategic investors, state-owned entities subscribed to the majority of the shares. The National Social Security Fund has taken 5% of the total issued share capital for HK$16.8 billion, while the overseas units of China’s big four banks — ICBC, China Construction Bank, Agricultural Bank of China and Bank of China — agreed to buy a total of 1.74% of Citic Pacific’s total share capital. Safe Investment, controlled by the State Administration of Foreign Exchange (Safe), bought 1.39%, China Life purchased 1.15% for $500 million and Beijing Infrastructure 0.18%.
Foreign investors include Temasek, AIA, the investment holding company of Qatar Investment Authority, CTBC Life Insurance, Tokio Marine & Nichido Fire Insurance, Mizuho Bank and Fubon Life Insurance. The seven foreign investors took a total of 2.31% of Citic Pacific’s shares.
The price of the placed shares was set at HK$13.48 apiece, representing a premium of 6.48% to the closing price of HK$12.66 on the acquisition announcement date of March 24, but a discount of 3.7% to Citic Pacific’s closing price of HK$14.0 on Thursday.
“We expect a follow-through demand from passive funds after the deal completion,” a Jefferies research report said, based on its views that the “New Citic” is a good proxy for the Chinese economy and it is expected to increase in index weighting. Jefferies suggest a “buy” with price target at HK$17.10.
