Citic's HK arm loses $2 billion in ill-timed currency bets

Hong Kong conglomerate Citic Pacific, controlled by China's biggest state owned investment company Citic, yesterday said that it may lose nearly $2 billion from badly timed currency bets after entering into currency hedges to buy the Australian dollar and the euro, which were intended to minimise its currency exposure to an iron ore mining project in Western Australia.

In a statement to the Hong Kong stock exchange, the conglomerate which holds property, steel and infrastructure assets discovered the unauthorised bad bets on leveraged foreign currency contracts last month. Since the discovery, it has terminated many of them, incurring a loss of $104 million.

The rest of the losses incurred would be in the region of $1.89 billion, which will be accounted when the company marks the contracts at the end of the year.
Citic Pacific's shares were suspended from trading today at the Hong Kong Stock Exchange but will resume trading tomorrow.

Citic Pacific's chairman, Larry Yung said in a statement, ''These contracts were done without proper authorisation and the potential maximum exposure under these contracts was not evaluated correctly.''

He added that the currency bets were discovered last month and the audit committee That investigated the bets indicated, ''there was no reason to believe fraud or other illegal activities were involved.''

Financial director Leslie Chang resigned for not following the company's hedging procedure and did not obtain approval before conducting the foreign exchange transactions. Vernon Francis Moore has been appointed in his place.