Everbright faces red ink over bank unit
Beijing-based China Everbright Bank will report 'considerable losses' for last year under Hong Kong accounting standards, after raising provisions sharply to meet a mainland regulatory deadline and for new defaults.
The losses were expected to drag the earnings of China Everbright, which owns 21.39 per cent of the bank, into negative territory, the listed company said in a statement to the Hong Kong stock exchange yesterday.
The profit warning triggered an 11.1 per cent plunge in red chip China Everbright's share price to $3.
The bank contributed about 66.5 per cent of the listed firm's taxed profit in 2003, excluding a one-off loss related to its now-sold 20 per cent stake in International Bank of Asia.
In a report yesterday, ABN Amro analyst Fan Cheuk-wan expected China Everbright to book net losses of $11.6 million for last year, compared with the $223.7 million net profit in 2003. The company is scheduled to announce its annual results on April 12.
A senior company executive attributed the bulk of Everbright Bank's provision increases to a 2002 People's Bank of China policy requiring mainland commercial banks to make up for a shortfall in their loan-loss reserves by the end of this year.
Mainland banks have historically been plagued by undercapitalisation and inadequate loan-loss provisions.
Everbright Bank's provision rise also reflects exposure to China Aviation Oil (Singapore) Corp (CAO), which suffered US$550 million in derivatives trading losses after betting wrongly on a decline in global oil prices.
As part of a 2003 international loan syndicate, Everbright lent US$25.65 million to the mainland-backed jet fuel trader. CAO has offered to pay its 98 creditors, which collectively owned US$530 million, 41.5 cents for every US dollar it owes.
'The bank is expected to disclose other default cases when China Everbright announces its 2004 results,' Ms Fan wrote.
Although audits have yet to be completed, the bank is still in the black under mainland accounting standards, the China Everbright executive said. It announced a 41 per cent increase in pretax profit to 1.15 billion yuan last year.
