CITIC Bank Boosting Diversified Operation

China CITIC Bank (SHSE: 601998 and SEHK: 0998) recently gained shareholder approval to acquire a 70.32 percent stake in CITIC International Financial Holdings Ltd. for HKD 13.56 billion in cash.

It is a result not beyond the expectation of the market, said industry observers. A top executive of the bank revealed that it had a plan to control CITIC International Financial in 2007. CITIC Group, parent of the bank, also unveiled intention to consolidate the latter.

It is the value of CITIC Ka Wah Bank, a wholly-owned subsidiary of the target, that pushed CITIC Bank to make such a decision. They are all banking units of CITIC Group, so it will be an easy job for CITIC Bank to consolidate CITIC Ka Wah Bank.

However, CITIC Bank is poor in direct investment and it has become a focal point whether it has the ability to consolidate CITIC Capital Holdings Ltd. and CITIC Asset Management Corp. Ltd., in which CITIC International Financial holds a 50 and 40 percent stake, respectively. It will benefit much from the deal provided that commercial banks in the country are allowed to conduct direct investment business one day.

Founded in 2002, CITIC Capital focuses on direct investment, real estate funds, asset management and etc. CITIC Asset was spilt from CITIC Ka Wah Bank in November 2002 and was mainly engaged in non-performing assert disposal. After several years of growth, it has shifted into a firm specializing in direct investment and fund management.

CITIC Bank inked a contract to take a 70.32 percent stake in CITIC International Financial from Gloryshare Investments, a subsidiary of CITIC Group, for HKD 13.56 billion, or USD 1.74 billion, in cash in May 2009. Compared to the target's HKD 9.49 billion assets, the consideration represents a 43 percent premium.

CITIC International Financial once got listed on the Stock Exchange of Hong Kong but was delisted from the bourse on November 5, 2008. It would be a tough job for CITIC Bank to control CITIC International Financial provided that the latter was not delisted.

The deal will deliver little impact on the bank's financial situation in the short run but will help lift its net profit and overall financial situation in the long run.

(USD 1 = CNY 6.83 and USD 1 = HKD 7.75)

Source: www.hexun.com (July 08, 2009)

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