Under Investigation - Citic Pacific

By Theresa Tang and Chia-Peck Wong

This is an important announcement... Oct. 22 (Bloomberg) -- Citic Pacific Ltd., which predicted HK$15.5 billion ($2 billion) of currency losses from unauthorized bets, faces a formal investigation from the Hong Kong Securities and Futures Commission.

A probe has been started, the commission said on its Web site, without giving details. Hong Kong Exchanges & Clearing Ltd., which runs the city's bourse, is also ``looking into'' the company, Henry Law, a spokesman, said.

Citic Pacific shares slumped by a record 55 percent yesterday and its debt ratings were cut after the company disclosed Oct. 20 the impact of wrong-way bets on the Australian dollar. The loss is almost four times the $550 million China Aviation Oil (Singapore) Corp. lost on jet-fuel trades in 2004.

"It's definitely not good news at this moment when the company is struggling with the currency losses,'' Patrick Chow, an analyst at Everbright Securities in Hong Kong, said by phone. ``It's too early to predict what would be the material impact on Citic Pacific.''

Citic Pacific, a Hong Kong unit of China's largest state- owned investment company, tumbled 10 percent to HK$5.86 in Hong Kong trading at 12:02 p.m. local time. This week's slump has slashed HK$19 billion off its market value.

"We will be looking into this situation as part of the normal practice of making enquiries to verify compliance with the listing rules and we will consider any issues raised,'' Law, a spokesman at the exchange, said by phone.

Investigation

Citic Pacific officials couldn't immediately comment on the investigation. The company said Oct. 20 that Financial Director Leslie Chang, 54, didn't follow hedging policy and failed to seek the chairman's approval before conducting the transactions. The company learnt of the agreements on Sept. 7.

Hong Kong lawmakers urged regulators to investigate Citic Pacific's delay in disclosing the loss, the South China Morning Post said today, citing Democratic Chairman Albert Ho. The company's shares fell 42 percent between Sept. 7, when the board learned of the exposure, and 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's Managing Director Henry Fan said yesterday in an interview in explaining the delay.

Citic Pacific bet that the Australian dollar would rise, incurring losses after the currency tumbled 30 percent against its U.S. 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 Oct. 20.

Last Updated: October 22, 2008 00:40 EDT

Courtesy: Foreign Exchange Online + Bloomberg