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CITIC Pacific shares soar as reshuffle calms investors

(Agencies)
Updated: 2009-04-09 18:30

CITIC Pacific shares soared on Thursday as a management reshuffle bolstered investor confidence, but analysts said it was too early to predict a turnaround for the loss-making firm that may need to speed up sales of non-core assets to cut debts.

The steel-to-property conglomerate, which was rocked last year by $1.9 billion in foreign exchange losses, announced on Wednesday Chairman Larry Yung, once China's richest man, and Managing Director Henry Fan had quit CITIC Pacific, which they founded in 1990.

Chang Zhenming, deputy chairman and president of CITIC Pacific's parent company, CITIC Group, was appointed chairman and managing director of the unit.

Related readings:  CITIC Pacific chief quits amid currency probe  Expensive lessons for overseas investment  Citic Pacific under investigation after currency loss

The stock rose as much as 19 percent before trimming some of those gains to close 12.1 percent higher in active trade with HK$951 million ($122.7 million) worth of shares changing hands.

"We can see some short-covering in the market today but it is still uncertain what the new management's strategies will be," said Alex Tang, research director at Core Pacific-Yamaichi International.

Analysts said the company may speed up the disposal of non-core businesses, including power assets, Hong Kong tunnels and its 17.5 percent stake in Cathay Pacific Airways.

"This is likely to be its immediate-term strategy," said Tang, referring to the possible sales of non-core assets.

CITIC Pacific planned to spend HK$10 billion in capital investment in 2009. Its net debt jumped nearly 90 percent in 2008 to HK$38.9 billion and gearing, net debt to total capital, rose to 44 percent from 26 percent a year earlier.

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However, investors and analysts, who had widely anticipated a management reshuffle, welcomed the changes.

"The resignations of the chairman and managing director have clearly removed some of the negative effect on the stock," said China Everbright Financial analyst Patrick Chow. "The market does hold them responsible for the huge forex investments."

Hong Kong's securities watchdog, the Securities and Futures Commission, has been investigating CITIC Pacific after the Hong Kong-listed arm of State-owned CITIC Group warned investors of huge potential losses from unauthorised foreign exchange trading last October.

But analysts said the company's fundamentals would not improve overnight, and Moody's Investors Service and Standard & Poor's do not expect the reshuffle to have an impact.

S&P said its rating on CITIC Pacific was not immediately affected by a change in the company's top management or the police investigation into foreign-exchange contracts.

There were continued concerns about the firm's weak balance sheet and its ability to turn around in the near term.

"It is probably premature at this moment to assume that Chang will eventually turn around the business," Anil Daswani, an analyst at Citigroup, said in a report.

The stock, which lost nearly three-quarter of its value last October after the huge foreign exchange loss was reported, has gained 27 percent so far this year, beating a 3.6 percent gain on the blue chip Hang Seng Index.