THE FIRST TEN YEARS: A PERIOD OF DIVERSIFICATION
CITIC Pacific's origins date back to 1987 when Beijing based China International Trust and Investment Corporation, now known as the CITIC Group, formed CITIC Hong Kong (Holdings) Limited as a wholly owned subsidiary in Hong Kong. In early 1990 CITIC Hong Kong, bought a 49% interest in Tylfull Company Ltd a company owning several Hong Kong properties and which was listed on the Hong Kong Stock Exchange. Around the same time CITIC Hong Kong sold Hong Kong properties it owned to Tylfull, which also acquired a 38.3% interest in Dragonair, then a young airline.
Tylfull changed its name to CITIC Pacific Ltd in 1991, took rapid steps to increase its investment in aviation and also to diversify its investment portfolio. In 1991 it increased its shareholding in Dragonair to 46% and bought a 12.5% interest in Cathay Pacific. In the same year the company purchased a 20% stake in Macau Telecom and invested in Dah Chong Hong (DCH), a leading Hong Kong based trading and motor distribution company. By mid 1992 DCH had become a wholly owned subsidiary of CITIC Pacific.
In the ensuing years CITIC Pacific continued the process of diversification, notably into the civil infrastructure and power businesses and the steel industry. A feature of activity in this period was a focus on developing and investing in businesses in mainland China. In 1993 the company acquired a 56% interest in the Ligang power station, which had been first developed by CITIC Hong Kong in the late 1980s, and a 50% stake in the Xinli power plant. In the same year a controlling interest in the Jiangyin Xingcheng Steel Works was acquired and this was the basis of the special steel business which is now one of the key industries of CITIC Pacific.
CITIC Pacific's initial venture into civil infrastructure was to join a consortium which in 1993 was awarded the franchise to build and operate the Western Harbour tunnel in Hong Kong. The bid was based on knowledge on of the tunnel business that CITIC Group and CITIC Hong Kong had gained through investing in the Eastern Harbour Tunnel in the mid 1980s, and in the following year CITIC Hong Kong’s interest in the Eastern Harbour tunnel was bought by CITIC Pacific. It also bought into existing tunnel and bridge franchises in Shanghai, namely the Nan Pu Bridge, the Yang Pu Bridge and the Da Pu Lu tunnel and subsequently built the Yanan East Road tunnel, all of which joined the newly developing district of Pudong to the traditional Puxi district of Shanghai.
CITIC Pacific had bought an interest in Hong Kong Telecom (now part of PCCW), from the UK’s Cable and Wireless of which it was a subsidiary, in an award winning financing which brought the group international attention. CITIC Pacific purchased a 12% stake in Hong Kong Telecom from CITIC Hong Kong in 1993. It was hoped to expand Hong Kong Telecom’s business into China, but this was not achieved and by 1997 CITIC Pacific no longer was involved in Hong Kong Telecom’s business.
The company continued to undertake property development projects in Hong Kong, sometimes in partnership with other large developers, including Festival Walk with Swire Properties and Discovery Bay with Hong Kong Resort Company. In the summer of 1994 CITIC Pacific, together with CITIC Hong Kong acquired land next to the Tamar site in Central, Hong Kong on which its headquarters, CITIC Tower, was subsequently built and opened in 1998. All four companies made CITIC Tower their headquarters in Hong Kong.
By the end of 1996 CITIC Pacific had become a significantly diversified conglomerate with 19% of its earnings being generated from civil infrastructure , 5% from power generation, 27% from aviation , 17% from telecommunications, 10% from trading distribution and consumer credit, 16% from property but only 1 % from industrial manufacturing.
In 1997 CITIC Pacific acquired a 20% interest in China Light and Power although 15% was sold back two years later as the basis for cooperation in developing China business was not achieved, and the residual stake was gradually sold in the market.
The Asian financial crisis in 1997 and 1998 limited expansion possibilities, although the impact was cushioned by well structured long-term finance and steady cash flows from the investments in power generation, and road tunnel and bridge franchises.
In the late 1990s CITIC Pacific began to explore expansion into the telecommunications sector once again, including co-operating with other parties to build a 32000km nation-wide fiber backbone network in China. In 2000 the company also acquired a 50% interest in CITIC Guo An, a business with interests in cable television, electronic commerce, and communications and networks activities in various locations in mainland China. In the same year CITIC Pacific purchased 100% of Telecom 1616 which later became CITIC 1616, and is now CITIC Telecom International. CPCnet was acquired by 1616 in the following year to be the group’s principal internet services provider. In that same year CITIC Pacific scaled back part its telecommunications activities on the mainland by selling all of its interests in the backbone network to CITIC Hong Kong once it became clear that under new regulations a license to operate the network would not be forthcoming.