Japanese conglomerate Itochu Corporation and Thailand’s CP Group are investing about US$10.4 billion to acquire a 20% stake in Chinese state-backed enterprise CITIC Limited. The investment forms part of the Chinese group’s plan to diversify its ownership structure in line with the state-owned enterprises’ (SOE) reform plans.

Under the agreement, Chia Tai Bright Investment, a joint investment vehicle owned equally by Itochu and CP Group, will initially purchase 2.49 billion shares or 10% of CITIC Limited for US$4.54 billion from parent CITIC Group, which currently owns 78% of CITIC Limited.

This will be followed by CITIC Limited issuing US$5.9 billion worth of new convertible preferred shares to Chia Tai Bright. For both transactions, Chia Tai Bright will pay HK$13.80 per share/ convertible preferred share.

Upon completion of the two transactions and assuming full conversion of preferred shares, Chia Tai Bright will hold around 20% interest in CITIC Limited, with CITIC Group remaining as the controlling shareholder of the company. The investment vehicle has the right to nominate one nonexecutive director and one independent non-executive director to the board of CITIC Limited.

Hong Kong-listed CITIC Limited, currently the largest conglomerate in China, was formed last year following a restructuring that involved parent CITIC Group injecting US$37 billion worth of additional assets into the entity formerly known as CITIC Pacific.

“This investment is a continuation of our reform and globalization that began last year when we transformed from CITIC Pacific to become CITIC Limited,” says Chang Zhenming, chairman of CITIC Limited.

Both CP Group and Itochu have previously invested in CITIC-related companies and are well-known to the Chinese group. In 2011, Itochu invested about US$100 million in a Hong Kong asset management arm of CITIC Group, while CP group was one of the 27 investors that took part in the US$6.87 billion share placement by CITIC Pacific last year.

“We believe the greater collaboration with CITIC and Itochu will broaden our opportunities in agriculture, industry retail, financial services and international trade, and pave the way for our future development by leveraging the respective expertise of each party,” remarks Dhanin Chearavanont, chairman of CP Group.

CP Group, which is among the first international companies to invest in China following the mainland’s openingup policy, has built a significant presence in the country since 1979 in a range of business sectors.

Masahiro Okafuji, president and CEO of Itochu, notes the alliance will help the Japanese group to take forward its agenda of expanding its business in China and Asia. “We believe this alliance will contribute further business development between Japan, China and the Asian countries.”

Nomura was the sole financial adviser to Itochu on this transaction. CITIC Securities advised the CITIC Group, while CITIC Securities International advised CITIC Limited. CP Group is believed to have hired no financial adviser for the transaction. – GD