Thai agribusiness giant Charoen Pokphand (CP) Group has agreed to a joint venture with Japanese trading house Itochu Corporation to invest US$10.4 billion (340 billion baht) to acquire 20% of the Chinese conglomerate Citic Ltd.
According to a joint statement issued by the three companies, the purchase in Citic Ltd will be through Chia Tai Bright Investment Co (CT Bright), held equally by CP Group and Itochu.
Dhanin: More options throughout Asia
Citic Ltd is 78% owned by Citic Group Corporation, China's oldest and largest conglomerate, based in Beijing and listed in Hong Kong. Its businesses include financial services, resources and energy, manufacturing, real estate and infrastructure, engineering contracting and other businesses in China and abroad.
The three parties also entered into a strategic cooperation agreement to work together across sectors and countries, bringing mutual opportunities for three of Asia's largest conglomerates.
A strategic cooperation committee will be established to agree on joint priorities and evaluate potential areas for collaboration.
The deal would see the pair, through CT Bright, acquire 10% of Citic for $4.54 billion in April and pay another $5.9 billion in 3.32 billion convertible preferred shares of Citic in October. Upon completion, CT Bright would hold about 20% of Citic Ltd shares.
Dhanin Chearavanont, an agribusiness tycoon and chairman of CP Group, said the transaction tightened the partnership of three leading Asian conglomerates planning to explore new trade and investment opportunities not only regionally but also across the globe.
The deal is expected to bring about new opportunities for CP Group in agribusiness, food, retail and international trade, he said.
"CP Group was the first international company to invest in China following the reopening of its economy in 1979, and we've built a significant presence in many businesses there," Mr Dhanin said.
"We believe greater collaboration with Citic and Itochu will broaden our opportunities in agriculture, industry, retail financial services and international trade.
"This partnership will also help to stimulate trade and promote investment in Thailand and across the region. And it will help to create better connectivity between Asia's economies."
Masahiro Okafuji, president and chief executive of Itochu, said his company had been seeking to expand its business in China and elsewhere in Asia and believed this alliance would contribute to further business development between Japan, China and other Asian countries.
Both CP Group and Itochu were pioneers in early investment in China, and the three companies are well known to each other.
In 2011, Itochu invested $100 million in Citic Group's Hong Kong asset management arm, and Itochu and Citic Group signed a comprehensive strategic cooperation agreement.
This deal will be the largest investment for a Japanese firm in China.
CP Group and Itochu entered into a significant cross-shareholding agreement last year, forming their own strategic alliance to pursue joint opportunities throughout this region, primarily in non-resource sectors.
Reuters reported some analysts saw the investment, which is likely to require bank borrowing, as risky for Itochu, as its market capitalisation was only slightly more than ¥2 trillion (551 billion baht).
"From a concentration risk perspective, it appears to be high risk," Nomura Securities analyst Yasuhiro Narita said.
"While Citic is a conglomerate, it deals with areas such as real estate and raw materials development that are facing deteriorating conditions, so we need to note the possibility of future losses."
CP Group previously invested heavily in China such as its 15.57% acquisition of Ping An Insurance Co from HSBC Holdings valued at almost $10 billion.
This was followed by its retail arm CP All acquiring Siam Makro, a cash and carry operator, for 188 billion baht.
Mr Dhanin last year said his company was interested in buying local LH Bank as well as the assets of Tesco UK, depending on the price.