CITIC Group, China's largest State-owned investment company, said yesterday its bond holdings in Lehman Brothers Holdings would not hurt its profits. It has also appointed Morgan Stanley as the adviser in the planned delisting of its Hong Kong-listed subsidiary CITIC International Financial Holdings (CFIH), replacing the now bankrupt Lehman Brothers.

CITIC Group said its bond holdings in Lehman Brothers Holdings were equivalent of less than 1 percent of its profit last year.

"Our holdings in Lehman is very small and do not affect our profits, though all companies in the world are susceptible to the US economic downturn one way or another," said Chang Zhenming, vice chairman of CITIC Group, at a press conference.

The group has designated Morgan Stanley to replace former adviser Lehman Brothers on the privatization of CIFH. Lehman Brothers filed for bankruptcy protection on Monday after failing to find buyers for a takeover.

CITIC Group recorded a 15.9 billion yuan net income for the year that ended Dec 31, 2007, while its operating profits during that period was 33.6 billion yuan, the company said on its website.

CITIC Group is consolidating its financial operations. On June 11 it announced that it would take its 55 percent owned CIFH private, by offering minority shareholders HK$1.46 in cash and one piece of share in China CITIC Bank Corp for each share in CIFH.

Late last month, CITIC Group raised that cash offer by 48 percent. It said it would offer one share in China CITIC Bank plus HK$2.16 in cash for every CIFH share.

Despite the current market turmoil, CITIC Group said it will adhere to that "final offer" and is confident the privatization will succeed.

Ju Weimin, chief financial officer of CITIC Group, said: "The company will not lower the offer amid the market volatility."

"It's a fair offer, the revision was based on feedback from investors, so that should enhance the appeal of the privatization," said Wong Kwok Wai, an analyst at BOC International Holdings.

The June offer valued CIFH at HK$6.9 per share then. However, shares in CIFH dropped 5.66 percent in yesterday's trading and ended at HK$5.33. Share value in China CITIC Bank fell over 5 percent since June.

Lehman Brothers advised CIFH on its agreement with Banco Bilbao Vizcaya Argentina SA (BBVA), in which Spain's second-biggest bank bought 4.83 percent stake in CIFH.

After the privatization, CITIC Group's stake in CIFH will rise to 70 percent, while the Spanish bank will also increase its stake.

BBVA said it would spend $1.24 billion to double its stakes in CIFH and CITIC Bank once the privatization is completed.

CITIC Group owns 62 percent of China CITIC Bank, the seventh-largest lender by assets in the country.

(HK Edition 09/18/2008 page2)