Shares and bonds of Chinese conglomerate CITIC Pacific surged after its state-owned parent, one of the country's biggest industrial companies, injected prime operating assets into the Hong Kong-listed firm.
In a sign that Beijing is intent on accelerating market-based economic reform, the move switches a raft of parent firm CITIC Group Corp's steel, property, banking and mining businesses out of full state control and into the glare of the private sector. The businesses made billion of dollars of profit last year for CITIC Group, which owns 57.5 percent of CITIC Pacific.
Investors sent CITIC Pacific stock as much as 30 percent higher on Thursday, welcoming the move as the most significant step taken by a central government-controlled enterprise in the current campaign to restructure Beijing's state-owned companies. It's the latest in a series of reforms planned by China to bolster the world's second-biggest economy as it slows after the blistering growth of the past decade.
"The backing of the government for all these companies is being slowly dissolved. These companies will have to stand by themselves," Hong Kong-based Jefferies strategist Sean Darby said.
At 0300 GMT, CITIC Pacific shares were trading up 13.6 percent at HK$14.38, having surged as high as HK$16.54 earlier in the session. The benchmark Hang Seng Index was flat.
The shares had been suspended from trading since last Monday pending an announcement. Trading volume were in excess of 115 million shares, close to 10 times the moving 30-day average.
CITIC Pacific's 2023 bonds traded up, with the issuer now seen by investors as a much stronger company. The curve has shifted up 5-10 points in price, with market betting on a rating upgrade which will take it closer to investment grade.
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Chinese President Xi Jinping is personally leading the charge of economic and social reforms, underscoring his determination to push through change amid fears of resistance from vested interests.
As part of that process, China Petroleum and Chemical Corp (Sinopec Corp) is planning to sell an up to 30 percent stake in its sprawling market business, a restructuring analysts say could raise $10-20 billion.
CITIC Group was established in 1979 by Rong Yiren, one of the few industrialists to stay behind in the mainland after the revolution of 1949. The company was set up with the support of former leader Deng Xiaoping, and now has 11 stock market-listed entities, including commercial lender China Citic Bank Corp , worth $32 billion by market capitalisation.
Rong's son, Larry Yung founded CITIC Pacific and went on to become one of China's richest men.
CITIC Pacific said in a filing late on Wednesday that it will acquire 100 percent of CITIC , the business housing the CITIC Group assets, using a combination of new shares and cash. CITIC Pacific will issue an undisclosed number of shares at a price of HK$13.48 each, equivalent to a 6.5 percent premium to its Monday close of HK$12.66, subject to a definitive agreement.
CITIC had total equity of about 225 billion yuan ($36.3 billion) at the end of 2013.
CITIC's businesses in China range from real estate to banking, securities, infrastructure, energy, natural resources and engineering among others. It made a net profit of 34 billion yuan ($5.48 billion) in 2013, the filing said.