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CITIC Seeks a Listing to Force Reform

2014-06-17 15:49:14 Caijing
Seeking a listing in Hong Kong is less about raising capital and more about CITIC changing its equity structure and governance practices, and finding a way for large SOEs to release reform dividends.

  By staff reporters Wang Xiaolu and Lu Ling

  CITIC Group Corporation (CITIC) is about to realize its long-time dream of holistic listing. The group stated this June that it will inject most of its assets into its Hong Kong-listed subsidiary CITIC PACIFIC. The upcoming IPO will transform CITIC into a large Hong Kong-based, state-controlled conglomerate.

  CITIC, proposed and approved by Deng Xiaoping, was founded by Rong Yiren in 1979. The group became a wholly state-owned company in 2011 thanks to a stock reform it launched in 2010. After the reform, the group has a 99.9 percent holding in CITIC Limited; while CITIC Limited owns 90 percent of the former’s assets, including financial assets like banking, securities, trust, and insurance businesses and non-financial assets such as real estate, resources and energy, and engineering projects.

  CITIC PACIFIC plans to buy up all of CITIC Limited’s outstanding shares. Aside from cash, CITIC PACIFIC will fund this deal by issuing new shares, which are priced at HK$13.48 per share. CITIC PACIFIC will be renamed CITIC Limited after the transaction.

  CITIC Limited’s (excluding CITIC PACIFIC) net assets totaled approximately 225 billion yuan by the end of 2013, among which 80 percent are financial assets and the remaining 20 percent are non-financial assets. After incorporating CITIC PACIFIC, CITIC Limited will have operating revenue of HK$410 billion and operating profits of HK$48 billion.

  CITIC, which operates in a number of fields including the financial and industrial sectors, is a microcosm of the Chinese economy. In this sense, buying CITIC shares is like investing in a stock index. The current slowdown in the Chinese economy has made it difficult for CITIC to attract investors.

  Due to foreign investors’ doubts about the company’s future, CITIC’s first round of share subscription did not go as well as expected. Concern among investors is one of the key challenges facing CITIC.

  CITIC Chairman Chang Zhenming said that during talks with foreign and domestic investors, CITIC Limited’s leadership were frequently asked whether the company’s corporate governance would be transparent and innovative, and whether the company’s leadership would be more market-oriented.

  The Chinese government’s massive influence on the economy, the very thing that once facilitated SOEs’ success, has now become a barrier to development, as administrative power has penetrated into every aspect of corporate governance.

  Therefore, seeking financing by listing on the stock market is only part of CITIC’s development strategy. The company also hopes that the listing can help change its equity structure and governance practices, and enable the hiring of executives from the market, so as to break away from the management system and governance model that have long plagued SOEs, especially large SOEs owned by the central government. The ultimate goal is to adapt the company to fair competition and integrate it into the global market for faster development.

  Moreover, by listing in Hong Kong, CITIC will become a foreign enterprise that enjoys the same treatment as domestic companies. It will enjoy unique favorable conditions in terms of industry access and talent introduction. Once CITIC receives “national treatment” as a foreign company, the government will have no reason to prevent foreign capital from entering markets that were off limits to them, which will facilitate China’s opening up further.

  Full article in Chinese:http://magazine.caijing.com.cn/2014-06-16/114266106.html

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