The Hong Kong-listed arm of China International Trust and Investment Corp (Citic), China’s largest state-owned investment group, had committed itself to large purchases of Australian dollars and euros on the assumption that the two currencies would continue to appreciate against the US dollar.
After the opposite trend emerged this summer, Citic Pacific found itself saddled with losses of US$1.88bn at current mark-to-market prices. That is more than three times the US$560m the company booked in profit for the first six months of this year. On Tuesday, Citic Pacific’s shares fell 55 per cent to HK$6.52, meaning the estimated forex losses now exceed the company’s market capitalisation.
With the US dollar strengthening dramatically since the onset of the global financial crisis, Citic Pacific’s losses could widen even further. The company must mark-to-market for reporting purposes on December 31. Nor will its problems end with the new year. Citic Pacific is contracted to buy more than A$9bn through October 2010.
Here is also a BBC report on YouTube.
Rong Yiren, who was called “the Red Capitalist,” founded Citic in 1978 and later became the Vice President of the People’s Republic of China. His son, Larry Yung Chi Kin, is now the chairman of Citic Pacific, whose accountability is under questions., and his daughter, Frances Yung Ming-fong, has already been punished. From the Standard,
Frances Yung Ming-fong, the 36-year-old daughter of chairman Larry Yung Chi-kin, has been removed from the finance department and demoted with a salary cut, along with another colleague, CITIC managing director Henry Fan Hung-ling confirmed to The Standard.
[…] Fan defended the firm’s decision not to sack Frances Yung by saying she held a “more junior” position and that the report of auditor PricewaterhouseCoopers suggested the two former finance chiefs were far more culpable.
[…]Frances Yung’s name only came to light yesterday after independent market commentator David Webb pointed out her title of director, group finance. “The daughter certainly knows what’s going on,” Webb said, adding CITIC Pacific’s corporate governance policy was defective.
According to Bloomberg, Hong Kong Securities and Futures Commission has also started a formal investigation on Citic Pacific.
For more about the recent finicial cirsis, see CDT’s tag finicial crisis 2008.