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Sovereign fund eyes stake in CITIC arm

By Lillian Liu (China Daily)
Updated: 2009-02-05 07:50

China Investment Corp (CIC), the country's largest sovereign wealth fund, is in talks to buy up to 50 percent of CITIC Capital Holdings Ltd, an investment arm of conglomerate CITIC Pacific, a source familiar with the deal said.

Related readings:  China's sovereign fund in 'no hurry to invest overseas'  CIC head not keen on fresh acquisitions  CIC in talks with AIG over unit acquisition: Report  CIC raises stake in Blackstone to 12.5% CIC denies reports of huge losses in US

The deal could be worth hundreds of millions of US dollars, based on CITIC Capital's registered capital, the source said.

The talks between executives at CIC, CITIC Pacific and its parent company CITIC Group have been going on for several months but no final decision on financial details have been confirmed, the source said.

Analysts said 2009 could be a year when more State-owned firms, "conduct active investment and acquisition activities".

Hong Kong-traded shares in CITIC Pacific surged to HK$9.2 yesterday, up by 3.3 percent.

Kenny Tang, head of research at Hong Kong-based Redford Securities, said the share price still has room to rise because negative factors from recent moves have surfaced.

CITIC Pacific locked a A$1.6 billion ($1.02 billion) investment in an Australian iron ore mine, following a rise in the Aussie dollar in 2007.

The red-chip group purchased equipment and supplies in Australian dollars and euros. To help fund the project, group finance director Leslie Chang entered derivative contracts that stood to profit as long as the US dollar weakened against the Australian dollar.

It seemed a smart bet until the financial crisis pushed down commodities prices this summer and sent foreign-exchange rates zigzagging. The loss may be the biggest derivatives loss reported by a Chinese company.