Citic Pacific pledges return to profit
Citic Pacific said it was confident of a return to profitability this year after posting a net loss of HK$12.66 billion for last year, its first in almost 20 years, after huge losses on wrong-way bets on the Australian dollar.
The embattled mainland investment firm suffered HK$14.63 billion in losses related to a number of foreign-exchange contracts, forcing it to seek a US$1.5 billion bailout from its Beijing-based parent, Citic Group.
For the first time, Citic Pacific will not pay a final dividend.
The company's net loss was HK$8.32 billion for the six months to December, compared with a profit of HK$5.83 billion in the 2007 period.
Citic Pacific earned HK$10.84 billion in 2007.
Referring to losses on Australian dollar accumulator contracts, chairman Larry Yung Chi-kin said the company was not interested in 'speculative activities'. However, Mr Yung did not disclose further details about the financial investment, because 'the issue is under investigation by the regulator'.
The company said it expected to return to profitability this year, even including the foreign-exchange contracts.
It said Beijing's 4 trillion yuan (HK$4.54 trillion) stimulus package would benefit the company's specialty steel, electricity and property businesses.
Mr Yung did not estimate how the fluctuation in the Australian dollar this year would affect the company's profitability. But he emphasised that 'Citic Pacific has already made a large portion of provision for the investment in accumulators'.
On January 2, the company said Mr Yung and managing director Henry Fan Hung-ling were among 17 directors being investigated by the Securities and Futures Commission.
The SFC did not disclose the nature of the probe. However, the board had been criticised by lawmakers and shareholder activist David Webb for a six-week delay in revealing the foreign-exchange contract losses.
Citic Group agreed in December last year to buy HK$11.6 billion of convertible bonds and assume about 60 per cent of Citic Pacific's Australian dollar derivative contracts in exchange for HK$9.3 billion.
'We can't tell what kind of assets the parent will inject into Citic Pacific,' Mr Yung said. 'But our parent has said the company should become an important non-financial platform in the future.'
Billy Ng, an analyst at JP Morgan, said in a research note that it was too early to call a turnaround for Citic Pacific this year, because the timing of a recovery in specialty steel was uncertain and visibility on iron ore projects remained low.
The airline business weighed down Citic Pacific, which owns 17.5 per cent of Cathay Pacific Airways.
'Cathay Pacific continues to face headwinds from the negative demand outlook,' Mr Ng said.
Mr Yung said Citic Pacific needed a further HK$6 billion in capital this year, but the company had no plans for a rights issue.
Shares of the company dropped 8.01 per cent to HK$8.96 after the results announcement.
