The troubles of Citic Pacific

The troubles of Citic Pacific

Shares of Citic Pacific company decreased to its 10-year level last Tuesday after the company’s executive made wrong currency bets that might cause the lose of about $2 billions by the company.

Citic Pacific is the government-backed company announced about possible losses to the stock exchange of the city this Monday. The reaction of the investors was quite aggressive. According to the last data the shares of the company decreased by 55.1 percent and thus have reached it’s lowest level that was registered in 1998.

The fact of the currency exposure revealed on September 7th and the company has already terminated several contracts however the forex market is quite aggressive in relation to the company since then.

According to David Webb a shareholder from Hong Kong there was no need for the company to warn its clients about possible risks to their money in six weeks. He supposes that the executives of the company announced the news at the time when they became aware of them. It is almost impossible for the company board to hide the information of such kind for so long period of time.

He has also noted that the shares of the company decreased by 41.7 percent in a period between the problems took place and the board announcement concerning it. And the benchmark Hang Seng Index in comparison to this decreased by 23.1 percent for the same period of time.

Due to chairman of the company Larry Yung the currency bets were made by the finance director Leslie Chang who has made them without sufficient authorization for such kind of tasks. Larry Yung has also apologized to the shareholders. As for Leslie Chang and financial controller Chau Chi-yin they are already fired after the problem revealed.

Due to Yung the event happened is surely a negative one but nevertheless the company has not lost its positions. The company has already incurred losses of about $104 million as it has terminated several forex contracts. Furthermore it is quite possible that the company will also may lose about 14.7 billion of Hong Kong dollars. These losses will grow from the foreign exchange contracts made in Australian dollars and Euro against the USD. However the Australian currency decreased in relation to USD quite considerably and thus the losses of the company may change depending on the strength of the USD.

The forex contracts of the Citic Pacific involved the participation of such banks as HSBC, BNP Paribas and Citigroup. However according to the announcement provided by the Citic Pacific its parent company is ready to provide $1.5 billion loan to assist the company in overcoming the crisis period.

Due to Billy Mak finance professor at Hong Kong Baptist University the events happened caused the questions related to the companies internal control.