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CITIC rejig move buoys investors

By Lillian Liu (China Daily)
Updated: 2009-05-20 08:13

CITIC Pacific's core business restructuring is going to be a long and tedious, but necessary, process to extract the company from the hedging controversy that has led to a police probe.

The conglomerate, with interests in power generation, aviation, civil engineering, mining and retail in Hong Kong and on the mainland, is known to be aggressively trimming its operations and revamping its corporate structure under the leadership of its new chief executive officer Chang Zhenming.

Chang, a senior executive at CITIC in Beijing, replaced Larry Yung, who stepped down after the massive hedging losses came into the open last October.

Related readings:  CITIC Pacific chief quits amid currency probe  Expensive lessons for overseas investment  Citic Pacific under investigation after currency loss

The most high profile initiative taken by Chang so far has been the plan to dispose off the group's investments in the mainland's railway builders and major power generating companies.

"We believe drastic changes are needed to turn the company around," analysts at Merrill Lynch led by Christie Ju wrote in a report. Putting it mildly, the report noted: "CITIC Pacific may need to sell some of its assets."

Analysts at Citigroup said in a research note that they expected the newly appointed chairman to speed up the progress of non-core asset disposals, and that candidates included power assets and CITIC Pacific's stake in Hong Kong's Cathay Pacific.

It will take Chang considerable time to improve the group's balance sheet, as almost 52 percent of cash and available bank facilities will be depleted in 2009, the analysts said.

Sources familiar with the group said earlier this month that CITIC Pacific had sold its entire 36 million shares at HK$10.70 each in China Railway Construction.

CITIC Pacific initially offered 25.1 million shares but decided to sell the remaining after getting strong response from institutional investors, according to a source. CITIC Pacific had bought the shares and became one of the nine cornerstone investors when the company went public last year.

Seeking to rebound from an annual loss, Chang agreed late last month to sell its 20 percent stake in an Inner Mongolia-based power supplier for 1.98 billion yuan ($290.13 million).

Chang's prompt action on non-core asset disposals received good market response. Shares in CITIC Pacific surged 7.3 percent following the report of stake sale in North United Power Corporation.

"With Chang as the chief executive officer, the company will move to a new direction. To some extent, the change of management is very positive for the company going forward," said Liu Yang, an analyst at Atlantis Investment Management.