China’s CITIC Prepares for ‘Backdoor’ Listing in Hong Kong

CITIC Group Corp., one of China’s largest state-owned investment companies, is selling its main operating unit to daughter company, CITIC Pacific Ltd., in a plan to get a backdoor listing on the Hong Kong stock exchange. According to a framework agreement signed by the two companies on March 26, CITIC Pacific will buy CITIC Ltd.—worth $36.3 billion—with a combination of cash and shareholder equity.

Once the deal goes through, CITIC Pacific will add CITIC Ltd.’s banking operations, resources, and real estate assets to its own portfolio of property, steel, and iron-ore interests. Total assets are estimated at almost $42 billion, making this the largest backdoor listing in the Hong Kong stock exchange’s history, according to Reuters.

In order to comply with exchange requirements that companies have a minimum public float of 15 percent, CITIC Pacific will have to sell an additional $4 billion in public shares. Further, the deal—technically not a backdoor listing, as there is no change of ownership for the listed company— is still subject to approval from the Hong Kong stock exchange as well as CITIC Pacific’s shareholders and board.

The listing will likely put an end to CITIC Group’s quest for its own $11 billion Hong Kong IPO, first made public in July 2010.