SFC probes massive CITIC Pacific loss
Updated: 2008-10-23 07:31
By Hui Ching-hoo(HK Edition)
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CITIC Pacific is being investigated by the Securities and Futures Commission, and the firm's managing director, Henry Fan, will suspend his outside posts to avoid conflicts of interest. AFP |
The Hong Kong Securities and Futures Commission (SFC) has opened an investigation into the massive HK$15.5 billion loss from unauthorized currency trading, which was announced by CITIC Pacific Monday.
CITIC Pacific announced yesterday that the company is cooperating with the regulator, and the company's managing director, Henry Fan, will take a leave from several of his positions to avoid conflicts of interest.
Until the investigation is complete, Fan will step down from his positions as HKEx director, as chairman of the Takeovers and Mergers Panel, as a member of the Takeovers Appeal Committee and as an ex-officio member of the Nominations Committee of the SFC.
The SFC watchdog is reportedly investigating whether CITIC Pacific provided misleading information to investors, as well as whether it conformed to the rules that regulate the disclosure of sensitive information.
In addition, Hong Kong Exchanges and Clearing also raised concerns about the case. Its spokesman said that the bourse will look into the situation as part of the normal practice of making enquiries to verify compliance with listing rules.
Further hit by the scandal, shares of CITIC Pacific yesterday plummeted 25 percent to HK$4.91 - the stock's lowest point since 1991. About HK$10 billion was wiped off the company's market value in the past two trading days, and the stock is down nearly 70 percent since Friday.
The company's chairman, Larry Yung, reportedly flew to Beijing to arrange a standby loan worth about HK$11.7 billion with its Beijing-based parent, CITIC Group.
According to HKEx, Yung and CITIC Group bought 1 million and 2 million shares of CITIC Pacific, respectively, on Sept 21. They paid HK$7.37 and HK$7.39 per share, respectively. That raised Yung's stake to 19.12 percent and the parent group's to 19.17 percent.
Terence Chong, an associate professor at the Chinese University of Hong Kong, criticized the company for failing to disclose the losses immediately.
"I don't see any reason why it took that long (six weeks) for the company's management to make the loss public," Chong said. "They could have roughly estimated the deficit as the problem uncovered and informed it to investors promptly."
Shareholder activist David Webb also criticized the six-week delay in revealing the losses, noting that the company's board knew of the risks associated with the currency trades as early as Sept 7.
The fiasco came to light on Monday when CITIC Pacific announced that the company's financial director, Leslie Chang, engaged in currency hedging with accumulator contracts without the chairman's approval, costing the company the estimated HK$15.5 billion.
(HK Edition 10/23/2008 page2)