TOKYO -- Japanese trading house Itochu and Thai giant Charoen Pokphand Group are ironing out the final details of investing just over 1 trillion yen ($8.45 billion) in a Chinese conglomerate to create new avenues for their food and resource businesses.
The two plan to invest in Citic Group, which is listed on the Hong Kong Stock Exchange, through an equally owned special-purpose company within the year. They will contribute evenly to the sum, together taking a roughly 20% stake in the Chinese company.
Citic Group is involved in a variety of industries, including banking, brokerage services, real estate and construction. The state-owned enterprise, founded in 1979, booked roughly 6 trillion yen in sales and a 1.32 trillion yen operating profit for 2013. But the group does most of its business domestically and has yet to build an international presence.
The deal will help Citic cultivate new markets in such emerging economies as Africa and Latin America, using Itochu's and CP's networks in food distribution and resource development. Citic could also be aiming to cut back on inefficiencies by bringing in foreign capital.
By investing in Citic, which has strong ties to Chinese President Xi Jinping, Itochu and CP will have an easier time accessing the country's highly regulated business sectors, such as resource development, logistics and property development. They are also planning partnerships for financial services, including e-commerce, as well as in developing new clothing stores.
Itochu and CP have invested about 100 billion yen in each other under a cross-shareholding deal signed last year. They are eyeing a three-way partnership where Itochu could supply Citic-funded farms with animal feed while CP handles processing and sales of the final product. CP books about $41 billion in sales a year from a wide range of segments, from food production to telecommunications.
Itochu's net profit came to 310 billion yen in fiscal 2013 to rank third among Japanese trading houses, after Mitsubishi Corp. and Mitsui & Co. It hopes to narrow the more than 100 billion yen gap with its two competitors by expanding the partnership with CP into China. The company is expected to contribute more than 500 billion yen to the deal, which would be the largest investment made by any Japanese trading house either domestically or abroad.
When Citic went public last year, Itochu, CP, Tokio Marine & Nichido Fire Insurance and Mizuho Bank each took a roughly 1% stake.