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Citic Pacific under investigation after currency loss

(China Daily)
Updated: 2008-10-23 10:51

Citic Pacific Ltd faces a formal investigation from the Hong Kong Securities and Futures Commission after predicting HK$15.5 billion in currency losses from unauthorized trades.

A probe has started, the commission said on its website, without elaborating. Hong Kong Exchanges & Clearing Ltd, which runs the city's bourse, is also "looking into" whether the company complied with listing rules, said Henry Law, a spokesman.

Citic Pacific has slumped 66 percent in the past two days and its debt ratings were cut after the company disclosed on Oct 20 the impact of wrong-way bets on the Australian dollar.

Citic Pacific, a Hong Kong unit of China's largest State- owned investment company, tumbled 25 percent to HK$4.91 in Hong Kong trading. This week's slump has slashed HK$21 billion off its market value.

"We will cooperate fully with the regulators in their investigation," Citic Pacific said in an e-mailed statement.

Its predicted loss, almost four times the $550 million China Aviation Oil (Singapore) Corp incurred on jet-fuel trades in 2004, may be the largest foreign exchange loss ever by a Chinese company, Geoffrey Cheng, an analyst at Daiwa Institute of Research, said.

Citic Pacific learnt of the currency agreements on Sept 7. On Sept 12 it issued a circular saying "directors are not aware of any material adverse change in the financial or trading position of the group since Dec 31, 2007", when announcing a so-called connected transaction.

The company's shares fell 42 percent between Sept 7, when the board learned of the exposure, and Oct 20. The city's benchmark Hang Seng Index dropped 23 percent in the same period.

Citic Pacific bet that the Australian dollar would rise, incurring losses after the currency tumbled 30 percent against its US counterpart from a 25-year high reached in July. The company, which makes steel and develops property, bought currency contracts to fund an A$1.6 billion ($1.1 billion) iron ore mine in Australia, it said on Oct 20.

Financial Director Leslie Chang didn't follow hedging policy and failed to seek the chairman's approval for the transactions, the company said on Oct 20.

"We were seeking to wind up those contracts once we learnt of the exposure on Sept 7, but the outbreak of the financial turmoil made it impossible to do it as the Australian dollar was falling sharply," Citic Pacific Managing Director Henry Fan said in an interview in explaining the delay.

Fan said the company took legal advice over the timing of its disclosure. He is part of the Hong Kong's executive council and a board member of the exchange.

"The board members have delegated the listing committee to deal with all listing matters," the exchange's Law said.

Agencies