Chinese conglomerate CITIC Pacific became the latest victim of global financial market turmoil on Monday after warning of potential foreign exchange losses of nearly $2 billion and accusing its senior finance director of trading without approval, reports Reuters.
Mark-to-market losses from leveraged foreign exchange contracts amounted to a whopping HK$14.7 billion ($1.9 billion) -- or nearly a third more than its net profit in 2007, the Beijing-backed company said on Monday.
CITIC Pacific, once a favorite among investors because of its state backing and government-invested pedigree, plans to make a major provision that will drag the company into the red for 2008, Chairman Larry Yung told reporters.
Company executives stressed that the company was experiencing no cash-flow problems, but admitted to the need to tighten internal supervision and controls.
Underscoring Beijing's support, parent CITIC Group -- one of China's largest state-owned financial groups and holder of a 29 percent stake in the listed company -- agreed to arrange a standby loan facility of $1.5 billion for the company, CITIC Pacific said.
"It's very unexpected," an analyst with a major brokerage said, declining to be identified because of the sensitivity of the issue. "I'm really disappointed as the company had never disclosed leveraged forex transactions before."
Chinese corporations have, for the most part, not been as hard hit by turmoil in the global financial markets, partly as a result of the strength of the Chinese economy, which is still growing at a near double-digit percent, and their relative lack of exposure to investments abroad.
CITIC's case marks one of the heaviest hits to a Chinese firm from market volatility, coming on the heels of No. 2 insurer Ping An's warning of a January-September loss after booking a $2.3 billion loss on its investment in troubled Fortis.