HONG KONG -- Citic Pacific Ltd. lost 55% of its market value Tuesday after disclosing huge forex losses, then scrambled to repair the damage by punishing employees, including the chairman's daughter, over their alleged roles in the debacle.
Managing Director Henry Fan told Dow Jones Newswires that Chairman Larry Yung's daughter, Frances Yung, had been removed from the company's finance department and would be reassigned to a new post to be determined later.
Citic Pacific had said Monday a board-level executive, Group Finance Director Leslie Chang, had made unauthorized trades that are expected to cost Citic Pacific around 15.5 billion Hong Kong dollars (US$2 billion) and give it a net loss for full-year 2008.
Mr. Fan said by telephone that Frances Yung "was involved in this case" and aware of the trading, but he didn't elaborate. Frances Yung, whose title had been director, finance group, didn't return several phone messages from Dow Jones Newswires seeking comment.
Mr. Chang and another board-level executive lost their jobs in the scandal.
Analysts pounded Citic Pacific on Tuesday with downgrades and sharp criticisms, saying it would be difficult for the blue-chip conglomerate to restore its once excellent reputation.
Citic Pacific shares ended at HK$6.52, after falling as much as 55.4% to a low of HK$6.47. Its market capitalization fell to HK$14.3 billion from HK$31.84 billion Friday.
Citigroup analyst Anil Daswani attacked Citic Pacific's "cowboy hedging policy" and downgraded his rating to sell from buy. Mr. Daswani cut his target price to HK$6.66 from HK$28.
"This episode has revealed deeply defective internal controls at a member of Hong Kong's blue-chip index," said David Webb, a prominent shareholder activist who used to be an independent director at the local stock exchange.
Mr. Webb said Citic Pacific, with interests in steel, iron ore, property and infrastructure, had waited too long to disclose the problem.
Citic Pacific said Monday its board had learned of the problem on Sept. 7, and it began investigating while arranging for its top shareholder, China's state-owned Citic Group, to step in with a US$1.5 billion standing loan.
Fan said Tuesday that Citic Pacific had gotten legal advice "for every step we took, including when to disclose the event."
Fan said more employees from the company's finance department had been demoted and had their salaries cut, but he didn't name them or say how many were punished.
Citic Pacific said Monday the currency trades would give it a loss for full-year 2008, with no impact expected on 2009 results. Mr. Fan told Dow Jones Tuesday the company has HK$9 billion on hand in cash and loan facilities.
"There should not be any short-term liquidity concern," J.P. Morgan analyst Billy Ng said in a research note, but he cut his rating on Citic Pacific to underweight from overweight.
"However, we believe the damage to the company's reputation is significant and it will take a long time to restore investors' confidence," Mr. Ng said.
Citic Pacific said Mr. Chang made the currency trades as the company was working on an iron ore mining project in Australia that required purchases in Australian dollars and euro. Fan said the trades began in July.
The trades were made under an arrangement known as an "accumulator" that gave Citic Pacific limited upside but unlimited downside, and they ran into deep trouble when the U.S. dollar unexpectedly rallied.
Mr. Fan named three banks as counterparties to Citic Pacific's trades: HSBC Holdings PLC, BNP Paribas S.A. and Citigroup Inc.
The Citic Pacific chairman, Larry Yung, said Monday the company had realized losses of HK$807.7 million on the forex contracts as of Friday.
He said the company would face a loss of about HK$14.7 billion based on current forex levels; however, as it intends to mark the contracts to market on Dec. 31, the actual loss could be higher or lower.
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