CITIC Pacific Chief Steps Following Police Raid

HONG KONG (Reuters) – Beijing-backed CITIC Pacific (0267.HK), a steel to property conglomerate, said Chairman Larry Yung, once China’s richest man, and Managing Director Henry Fan had quit the company, which was rocked by $1.9 billion in foreign exchange losses last year.

CITIC Group’s Deputy Chairman and President Chang Zhenming, 52, was appointed chairman and managing director, the Hong Kong-listed group said in a statement on Wednesday.

Both Yung, 67, and Fan are founders of CITIC Pacific, which was established in 1990.

It has been widely speculated the Beijing parent, CITIC Group, was keen to reshuffle management after its Hong Kong-listed arm warned investors of huge potential losses from unauthorised foreign exchange trading.

“The management change could help lift investor confidence but people would like to know more about whether the company will take further steps to improve its risk management,” said Jaseper Tsang, research director at Capital Securities.

Hong Kong’s securities watchdog, the Securities and Futures Commission, has been investigating CITIC Pacific in relation to the foreign exchange contracts.

Shares of CITIC Pacific, a constituent of the Hang Seng Index .HSI, plunged nearly 75 percent to a 19-year low of HK$3.66 in October after the profit warning and last traded at HK$9.47 on Friday before the stock was suspended.

The shares are up 13 percent so far this year, beating a 0.6 percent rise in the index. The company said trading in the shares will resume on Thursday.

Police raided offices of CITIC Pacific last Friday, asking the company and its directors to provide certain information regarding the forex contracts.

CITIC Pacific said the search was related to an investigation of alleged false statements by company directors and conspiracy to defraud. No charges or arrests were made, it said.

Last October, Group Finance Director Leslie Chang and Financial Controller Chi Yui Chau resigned after the losses were discovered.

CITIC Pacific had said the transactions were not approved by the company and the chairman was not notified of the unusual hedging transactions.

But the company was criticised for a two-week gap between management discovering the losses and reporting them to investors.

PARENT OFFERS LIFELINE

CITIC Group has sent a team to further investigate the foreign exchange loss and other possible irregularities, local media reported.

The parent agreed in November to buy $1.5 billion worth of convertible bonds from CITIC Pacific and assume responsibility for some of its toxic foreign exchange contracts in a bid to bolster investor confidence.

Last month, CITIC Pacific reported a record loss of HK$12.7 billion ($1.64 billion) for 2008, mainly due to a HK$14.6 billion deficit from foreign exchange contracts. ($1=HK$7.750)

By Alison Leung
(Editing by Anshuman Daga)