Analysts say a securities probe into Citic Pacific Ltd's share performance is not likely to affect the company's shares in Hong Kong.
Securities experts say Citic Pacific's parent company reacted swiftly and strongly to support the stock soon after allegations of misconduct surfaced.
Shares in the Hong Kong division of the mainland's biggest state-owned investment company opened 4 percent higher yesterday. The company's shares ended the day at HK$10.94, a 7.25 percent increase over the session.
The increase followed a 22 percent surge in Citic Pacific shares Friday. Company securities outperformed the Hong Kong Exchange board during both trading sessions.
"Investors have great confidence in the government-backed conglomerate and its financial status. The announcement of the securities probe was widely expected. The market was not taken by surprise," said Louis Wong, director of Phillip Securities in Hong Kong.
Citic Pacific said on Friday the Hong Kong Securities and Futures Commission (SFC) was investigating its chairman and managing director. The inquiry arises from currency derivative transactions undertaken by management, which led to a loss estimated at HK$2.4 billion.
Chairman Larry Yung and Managing Director Henry Fan are among the 17 directors under scrutiny, according to a statement filed by Citic Pacific with the Hong Kong Stock Exchange. The company did not elaborate.
A spokeswoman for Citic Pacific, reached by China Daily yesterday, said the company "is waiting for the outcome." She declined comment on what aspects of corporate operations the SFC is investigating.
SFC says it is not yet ready to make public any facet of its inquiry.
"Negative factors of management misconduct have been factored in already. The current situation is indicative only of the company's lack of management transparency. Share prices won't be affected," said Kenny Tang, head of research at Hong Kong-based Redford Securities.
Tang added that the share price in Citic Pacific still has room for growth, though he said it's unlikely to go above HK$15 to HK$16.
Citic Pacific locked in to a $1.6 billion investment in an Australian iron ore mine in 2007 after an increase in the value of the Aussie currency.
The red-chip group purchased equipment and supplies in Australian dollars and euros. To help fund the mining endeavor, group finance director Leslie Chang signed derivative contracts that stood to profit the company, as long as the US dollar grew weaker against the Australian currency.
It seemed a safe investment. Things started to unravel when the financial crisis exerted a downward pressure on commodities prices last summer and sent foreign-exchange rates gyrating wildly.
The resulting loss may be the biggest derivatives loss ever reported by a Chinese company, analysts say.
Company shares fell 42 percent between Sept 7, when the board learned of the company's exposure to risk, and Oct 20. Hong Kong's benchmark Hang Seng Index dropped 23 percent over the same period.
(China Daily January 6, 2009)