Shares in the Chinese government-backed investment firm Citic Pacific (中信泰富) plunged to a 10-year low yesterday after it said an executive had made improper currency bets that could lose the firm up to US$2 billion.
Citic Pacific, which is the Hong Kong-listed arm of the China International Trust and Investment Corp, revealed the possible losses in a statement to the territory’s stock exchange on Monday.
Investors reacted aggressively in yesterday’s trading.
At the end of the morning session shares in the company were trading at HK$7.88 (US$1.02), down 45.7 percent. Earlier it had fallen as low as HK$7.78, its lowest figure since 1998. Shares in the company had been suspended on Monday.
The firm first became aware of the currency exposure on Sept. 7 and had terminated some of the contracts, but the foreign exchange market has since moved against them.
Hong Kong shareholder activist David Webb said there was no reason for the company to take six weeks to warn shareholders that their money was at risk.
“The board should have disclosed what they knew, when they knew it,” he said on his Web site.
“It is mind-boggling that the board could sit on this information for so long,” he wrote.
Webb said that Citic Pacific’s shares had fallen 41.7 percent between the company discovering the problem and the announcement, while the benchmark Hang Seng Index has fallen 23.1 percent in the same period. The currency bets were made by group finance director Leslie Chang (張立憲), who had acted without the proper authorization, the firm’s chairman, Larry Yung (榮智健), said in a statement. He also apologized to shareholders.
Chang and financial controller Chau Chi-yin (周志賢) have resigned since the trade was exposed.
“Needless to say, this is a very unhappy event,” Yung said, adding that the firm, which has interests ranging from infrastructure to aviation, remained in a solid position despite the loss.
The filing to the stock exchange said the company had already incurred losses of HK$808 million in terminating some of its leveraged foreign exchange contracts.
In addition, it said it had further potential losses of HK$14.7 billion from outstanding leveraged forex contracts held in Australian dollars and euros against the US dollar.
The Australian dollar has fallen sharply against the US dollar since early this month and the losses could rise or fall depending on the performance of the greenback.
The company did not say whether it would wind up the trades in the near future.
Citic Pacific said in its parent firm, which has a 29 percent stake, had agreed to provide a standby loan of US$1.5 billion to help it through the crisis.
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