By Atsuko Fukase
A Japanese conglomerate that trades everything from gas to grain
and the holding company owned by Thailand's richest have agreed to
a deal to pay about $10.2 billion for a fifth of Citic Ltd., in one
of the biggest foreign investments in a Chinese state-owned
company.
Japan's Itochu Corp. and Charoen Pokphand Group, the
agribusiness firm owned by Dhanin Chearavanont, are seeking loans
from Japan's largest banks to fund the tie-up, people with
knowledge of the matter said. The Itochu-CP acquisition of 20% of
Citic, one of the biggest deals in the region in the past year, was
first reported by The Wall Street Journal in December.
In statements Tuesday, Tokyo-based Itochu and CP Group confirmed
they have agreed to buy the Citic stake.
The investment by the Japanese and Thai conglomerates into one
of China's biggest financial firms comes on the heels of a thaw in
tensions between Tokyo and Beijing after the presidents of both
countries met in the Chinese capital in November.
That China is allowing a deal of such size shows Beijing is
moving forward with its stated aims of expanding outside investment
in its biggest state firms. Citic, the conglomerate created under
China's opening in the 1970s, took steps toward bringing in outside
investors last year by selling assets from its unlisted parent
company to its Hong Kong unit. Chinese state firms usually only
list subsidiaries, subjecting only a portion of the company's
assets and management to outside scrutiny.
The three-way combination could also help cement the three
parties as co-investors rather than competitors, as they seek to
expand and buy assets across Asia and other markets, people
familiar with the matter said earlier.
Itochu, one of Japan's oldest trading houses, has been eager to
expand outside its home market. Apart from CP Group's focus on
China, it is a major player in food and retail services in
Southeast Asia. Mr. Dhanin has often talked of his ambitions to
grow further. Citic, whose assets range from one of China's biggest
banks to securities firms and miners, has been bulking up outside
China. Its brokerage, Citic Securities, purchased Asian securities
firm CLSA a couple of years ago.
Itochu, CP, and Citic have pre-existing investment links that
paved the way for the current groundbreaking deal.
Itochu owns a quarter of CP's Hong Kong-listed unit, while the
Thai firm has a 4.9% stake in the Japanese trading house. Itochu
formed a "comprehensive strategic alliance" with Citic Group in
2011, making a $100 million investment in a Citic asset-management
arm in Hong Kong.
The deal also marks a culmination of years of ties between Citic
and Japan, and between executives at the state firm and the
Japanese trading house.
Citic Chairman Chang Zhenming studied Japanese at a Chinese
university in the early 1980s and served as an aide to more senior
Citic officials as they formed partnerships with Japanese
counterparts.
While other big Chinese companies have looked to the U.S. or
Europe as models, Citic has carved a niche by cultivating ties with
major Japanese firms. It has ties with Mizuho Financial Group, for
instance, which was a key investor in the Chinese company's 2007
float of China Citic Bank Corp. in Hong Kong. Mizuho also invested
in the $37 billion injection of Citic assets into its Hong
Kong-listed entity Citic Pacific last year.
Itochu is no stranger to China. It was the first Japanese
trading house to resume shipping goods between China and Japan in
1972, even before China's Communist Party and the Japanese
government formally re-established diplomatic ties. Itochu has had
a Beijing representative office since 1979.
Like Itochu, CP Group has a long history in China, and was the
first foreign company to operate their after the Communist takeover
in 1949. The Thai company made a splash in 2012 by agreeing to buy
15% of Ping An Insurance Group, one of China's top insurers, for
$9.4 billion from HSBC Holdings PLC. Founded in 1921, CP Group
started in the feed and food industries, later adding retail,
telecommunications and real estate.
Itochu has asked he banking units of Mizuho, Sumitomo Mitsui
Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and
Sumitomo Mitsui Trust Holdings Inc. for loans of more than Y500
billion ($4.4 billion), according to a person familiar with the
matter. The banks will discuss details of the deal later, the
person said.
Write to Rick Carew at rick.carew@gmail.com and Atsuko Fukase at
atsuko.fukase@wsj.com
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