Citic Pacific Chairman Steps Down Following Investigation

飞雪寒冰

a Hong Kong conglomerate controlled by the China’s largest state-owned investment company, announced late on April 8 that its chairman, Larry Yung, and managing director, Henry Fan, have resigned from the company. Their withdrawal follows a Hong Kong police investigation into Citic Pacific’s massive foreign exchange losses in the fall of 2008.




Larry Yung(left)                                          Henry Fan(right)

In his resignation letter to the board, Yung said, “The execution on 3 April 2009 of the search warrant by the Commercial Crime Bureau requiring the company and its directors to provide information has had a great impact on society. Faced with this reality, I think that my resignation would be in the best interests of the company.”



Citic Group Deputy Chairman and President Chang Zhenming will become chairman and managing director of Citic Pacific, the company said in a statement.

飞雪寒冰

The police who executed the warrant April 3 were looking for evidence of conspiracy to defraud and false statements connected to Citic Pacific’s 2008 derivatives losses.



The company’s legal troubles stem from the delayed disclosure of its losses. Although Citic Pacific shed HK$ 14.6 billion on foreign exchange forward contracts in September, the company did not acknowledge the disaster until October. Finance director Leslie Chang and chief financial officer Chau Chi-yin have since resigned.



Citic Pacific claims its executives made unauthorized derivatives bets on the Australian dollar and euro, which contributed to a net loss of HK$ 12.7 billion in 2008. Following the loss, Citic Pacific had to be bailed out by its parent, Citic Group.

A person close to Citic Pacific said Police have been looking into the company’s losses since late 2008 and very likely had enough evidence before the raid to justify such a high-profile search.



Analysts believe the scandal surrounding Citic Pacific will not drastically impact other subsidiaries of Citic Group, such as Citic Securities Co. (SSE: 600030) and China Citic Bank (SSE: 601998), as these companies are operated independently.  



Several senior Citic Pacific executives who are under investigation also serve as board members AT a number of listed companies. These include China Cosco Holdings Co. (HKSE: 01919), Cathay Pacific Airways Ltd. (HKSE: 0293), New World Development Co. (HKSE: 00017) and Dah Chong Hong Holding Ltd. (HKSE: 01828). All claim their board members were not involved in Citic Pacific’s currency speculation.