Japan's Itochu Corp. and Thailand's Charoen Pokphand Group said Tuesday, Jan. 20, they will team up to buy about 20% of China's state-controlled investment group Citic Ltd. after striking a $10.4 billion deal that will give them increased exposure to Chinese economic growth. Just under half the cash from the sale will accrue to Citic Group Corp., which owns 78% of the listed Citic Ltd., while $5.9 billion will go directly to Citic Ltd., which has earmarked the windfall for investment in sectors including energy, services for the elderly and banking for the rich. The deal comes amid a Chinese government push to introduce private investors and their know-how into state-backed enterprises. Itochu's investment will be the largest ever in a Chinese company by a Japanese business, easily topping the previous $1 billion record set when Nissan Motor Co. Ltd. invested $1 billion in China's Dongfeng Motor Corp. in 2002. "Not only have we brought in private investors, but they are attractive global conglomerates who will extend our reach and complement our infrastructure and knowledge," Citic Ltd. Chairman Chang Zhenming said in a statement. Under the terms of the deal, Itochu and Charoen will jointly buy 10% of Citic Ltd's ordinary shares for HK$34.4 billion ($4.54 billion) from Citic Group Corp. Then, by October, they will pay a further HK$45.9 billion for new convertible preferred shares, which, once converted, will boost their total stake to just over 20%. The proceeds from the sale of the preferred shares will accrue to Citic Ltd. The partners will acquire the shares through 50:50 ownership vehicle Chia Tai Bright Investment Co. Ltd. The announcement of the capital injection is timely for Citic Ltd., which also on Tuesday said it expected to book a non-cash write down of between $1.4 billion and $1.7 billion on its disastrous investment in the Sino Iron Project in Western Australia. The timing of the deal also proved fortuitous for the new investors' hopes of tapping Chinese growth. The Chinese government on Tuesday announced GDP growth of 7.4% in 2014. Although the figure marks a 24-year low, it was slightly ahead of expectations for growth of about 7.2%. Citic Ltd. posted net profit of HK$48 billion for 2013, the latest year for which figures are available. The company operates in a broad range of sectors including banking, where it is China's No. 7 lender; real estate investment; construction, where it ranks No. 6 in China and a broad range of manufacturing operations. Citic Ltd. closed in Hong Kong on Tuesday at HK$13.52, up $0.20, or 1.5%, valuing the stock at HK$336.7 billion ($43.4 billion). Itochu is Japan's third-largest trading and investment conglomerate. The company said in 2011 that it would target investment in China to add growth away from its sluggish home market. Privately held Charoen is controlled by Dhanin Chearavanont, the nation's second-richest man. It is Thailand's largest agricultural group and has been a long-time investor in China. In late 2012, it paid about $9.4 billion for a 15.6% stake in Chinese insurer Ping An Insurance (Group) Co. that was owned by HSBC Holdings plc. Following the completion of the investment the Thai and Japanese investors will nominate one non-executive director and one independent non-executive director to the board of Citic Ltd. The investment needs the approval of Citic Ltd.'s minority shareholders, who will vote on the deal in March. Shares in Itochu traded Tuesday at ¥1,2070, down ¥31.5, or just over 2.5%, on their Monday close, equating to a market capitalization of ¥2 trillion ($16.95 billion). Read more from:
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