Japanese trading house Itochu Corp. and Thailand’s Charoen Pokphand Group (CP) will jointly invest US$10 billion in Citic Group, China’s oldest and biggest conglomerate, Reuters reported.
Itochu and CP Group plan to contribute evenly to the investment, taking a joint stake of as much as 20 percent, the news agency said.
Citic has been broadening its investor base as part of President Xi Jinping’s efforts to reform state-owned enterprises. Citic completed a restructuring in August by injecting about US$36 billion worth of assets into a Hong Kong-listed unit.
The investment is by far the biggest made by a Japanese company into China on record, according to Thomson Reuters data, beating a US$1 billion investment by Nissan Motor into Dongfeng Motor Corp. in 2002.
While deals between Chinese and Japanese companies have become more frequent in recent years, Thomson Reuters data show that most have been small. The 55 Japanese acquisitions in China last year were worth a total of around US$772 million.
It is also the biggest ever by Itochu, and comes as it is trying to expand its business interests beyond resources, an area where it spent heavily during the global commodities boom through the early 2010s.
The deal will take place in two stages, with Itochu and CP Group agreeing to buy nearly 2.5 billion shares in Citic for HK$34.4 billion (US$4.44 billion) in April this year, and a further 3.3 billion shares for HK$45.9 billion in October.
Some analysts said the investment, which will probably require borrowing from banks, appeared risky for Itochu considering its market capitalization was only slightly over 2 trillion yen.
“From a concentration risk perspective, it appears to be high risk,” said Nomura Securities analyst Yasuhiro Narita.
“While Citic is a conglomerate, it deals with areas such as real estate and raw materials development which are facing deteriorating conditions, we need to note the possibility of future losses,” he added.
For CP Group, a conglomerate controlled by Thailand’s second richest man Dhanin Chearavanont, the deal is the latest in a long series of investments in China ranging from agriculture and retail to finance.
It was the first multinational to invest in China’s agri-business in 1979, helping it modernize the country’s farm sector, the report said.
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