infrastructure company citic pacific in hk declared half of worth lost via currency contracts, more losses may be undeclared as yet
the insiders started selling 1 months ago when they first knew
there will be more of these leading on to the year end and after. old larry yung probably personally got reduced to usd 700 mil from 3.7 bil.
not exactly biblical justice as yet
i noticed that some prime properties within buildings known with concentrated mainland chinese holdings are asking anywhere between 20-30 off peak price of june, back to january levels. can fall another 50% to come within "i will bother to look and then bargain" range.
i also note that a small studio that used to be a one woman brothel before my property club purchased the entire building just got a leasing bid from singapore financial type person, so that he gets to come to hk without checking into hotels
we will take the bid, at 30% below our original asking
the property club is otherwise healthy, using no leverage, with tremendous positive cash flow coming in each months, secured against renters' business and personal assets (depending who signed the deal), as the cases may be, and under english common law (no trial needed; the judges will simply issue wind-up orders of company or assess the persons based on contract shown him.
the property club will likely declared a regular dividend starting this year's end.
i am beginning to get into this crisis, after the initial hesitation ;0)
online.wsj.com
OCTOBER 21, 2008, 2:48 P.M. ET Citic Pacific Feels the Heat
Employees Punished in Currency Debacle; Stock Plunges 55%
By LAURA SANTINI
HONG KONG -- Citic Pacific Ltd. shares plunged 55% as the company scrambled to minimize the fallout from its admission that leveraged currency positions could lead to nearly $2 billion in losses.
On Tuesday, Citic Pacific, a Hong Kong-listed company with Chinese financial backing, said it had demoted or disciplined an unspecified number of employees from its finance department, including the daughter of Chairman Larry Yung. The company said it was in talks to sell all or part of its 56.67% stake in Dah Chong Hong Holdings Ltd., a listed automobile dealer and distributor of home products. Citic Pacific didn't offer a reason, but any deal would help it raise needed cash.
Earlier Tuesday, analysts continued to blast the company for its handling of the currency debacle. Most critically for investors, Citic Pacific has expressed reluctance to unwind the bad bets and realize its losses, apparently in the hopes of recouping its money should the Australian dollar rebound.
"The company doesn't have the appetite to close out right now," said Danie Schutte, an analyst covering Hong Kong conglomerates at CLSA Asia-Pacific Markets. Investors have little incentive to buy or even hang on to shares until the extent of the damage is known, Mr. Schutte said.
Citigroup analyst Anil Daswani derided Citic Pacific's "cowboy hedging policy."
Shares of Citic Pacific, a component of Hong Kong's benchmark Hang Seng Index, closed at HK$6.52 (84 U.S. cents) on Tuesday, 85% off their high for the year.
According to the company, it ran afoul of currency positions placed through structured products dubbed "accumulators." Accumulators are contracts in which an investor agrees to buy a specified amount of a security or currency at a fixed price over a period of several months. The price often represents a discount to the spot market.
So long as a security or currency is appreciating, the investor benefits by earning a yield on the difference between the fixed price and the trading value. But they also can lead to steep losses on the downside when the security or currency falls below the purchase price.
Citic Pacific says it is invested in accumulators whose value is about nine billion Australian dollars (US$6.3 billion). The contracts require the company to purchase the Australian currency at a fixed price of 87 U.S. cents.
After reaching a high of roughly 98 U.S. cents in July, the Australian dollar has fallen sharply in recent months and now trades around 69 U.S. cents.
While the company's losing position could reverse itself if the Australian dollar rallies against the U.S. currency, most analysts are predicting a further slide, which could lead to steeper losses.
The company said it will mark to market the accumulators and other derivatives on Dec. 31. It has unwound some derivatives contracts, resulting in a total realized loss of HK$807.7 million (US$104.2 million), it said in a statement. Citic Pacific has similar contracts linked to the value of the euro and Chinese yuan. The company said its trading counterparties include Citigroup Inc., HSBC PLC and BNP Paribas SA. Citigroup and HSBC declined to comment. A spokeswoman at BNP couldn't be reached.
Citic Pacific, an affiliate of China's Citic Group, operates an iron-ore mine in Western Australia, a capital-intensive project that requires that the company purchase equipment and supplies in Australian dollars. Initially, the accumulators represented a way to finance those costs, while providing a cushion against a weakening of the Australian currency.
Businesses operating in overseas markets often hedge their currency exposure, but rarely use accumulators to do so. Bankers who structure these products acknowledge that they aren't proper hedging tools.
On Monday, Citic Pacific's Mr. Yung blamed the debacle on the company's group finance director, Leslie Chang, as well as its group financial controller, Chi Yin Chau.
The timing of Citic Pacific's disclosure is drawing scrutiny. Citic Pacific said Monday it became aware of its exposure to the bad bets on Sept. 7, yet it didn't inform the public until more than a month later.
"It is the obligation of any senior manager to tell the market about any information that affects the share prices," said David Webb, a shareholder activist in Hong Kong. "If this were the U.S., anyone who bought shares in that period would have a class-action [lawsuit] on their hands."
In a sign of the impact Citic Pacific's troubles are having on its parent, Standard & Poor's said Tuesday it was placing on review for possible downgrade the credit ratings of Citic Group and its financial arm outside mainland China, Citic International Financial Holdings Ltd.
Write to Laura Santini at laura.santini@wsj.com
|
