Citic Pacific may lose $2b on bad bets

HONG KONG - Citic Pacific Ltd., the Hong Kong arm of the Chinese government's main investment company, warned yesterday it could face losses of almost $2 billion after a top executive made unauthorized bets against the US dollar.

Citic Pacific, which holds property, steel, and infrastructure assets, discovered the bad bets on leveraged foreign-currency contracts last month and has since unwound many of them, contributing to a realized loss of nearly $104 million, it said in a statement to the Hong Kong stock exchange.

The rest could cost the company another $1.89 billion when it marks the contracts at the end of the year.

Citic Pacific has secured a $1.5 billion standby loan from its major shareholder, Beijing-based Citic Group.

Chairman Larry Yung said the company has replaced finance director Leslie Chang for placing the foreign-currency bets without prior approval and financial controller Chi Yin Chau for failing to provide proper oversight.

Vernon Francis Moore, a director since 1990, has been appointed finance director.

Yung said an investigation found no evidence of fraud. Other staff could face discipline. "Needless to say, this a very unhappy event," he said.

According to the company, the transactions were linked to equipment and materials for an iron-ore mine in Australia. Because supplies were to be purchased in Australian dollars and euros, the currency bets were placed with the aim of fixing costs.