Citic Pacific

Citic Pacific reshuffle may help probe by SFC and police, say experts

PUBLISHED : Friday, 10 April, 2009, 12:00am
UPDATED : Friday, 10 April, 2009, 12:00am

Lawyers and legislators believe the resignation of Citic Pacific's top two executives will benefit the continuing investigation by the police and the Securities and Futures Commission into the company's finances.

Legislator and lawyer Albert Ho Chun-yan said the remaining board members were more likely to co-operate with the police and the SFC after former chairman Larry Yung Chi-kin and former managing director Henry Fan Hung-ling stepped down. Their positions have been taken over by Citic Group vice-chairman Chang Zhenming.

'The resignation of Mr Yung and Mr Fan may benefit the police investigation as other executives may feel more relaxed in giving information,' Mr Ho said. 'I believe Mr Yung and Mr Fan are both good citizens and will co-operate with the investigation.'

The resignations on Wednesday came after the Commercial Crime Bureau last Friday executed a search warrant and removed documents from the company's offices. The police asked Citic Pacific directors to assist investigations into allegations of false statements by directors and/or conspiracy to defraud.

The SFC started its investigation in October last year after the company announced it had entered into a large number of high-risk, complex foreign currency deals on which it eventually lost HK$14.63 billion.

Legislator Ronny Tong Ka-wah, who is a barrister, said Mr Yung and Mr Fan should have resigned in October when the losses were announced not only after the police action last week.

'As top management, they should be responsible for the losses and should have stepped down immediately,' Mr Tong said, adding their resignations should have no impact on the investigation by the SFC and the police.

Mr Tong questioned Citic Pacific's board of directors' statement that the foreign exchange deals were executed without its authorisation.

'If the board of directors did not know about these deals, there was a lack of internal control on staff. If they knew, the problem is bigger in terms of why they did not stop it,' he said.

Mr Tong also said the SFC investigation appeared to be progressing too slowly.

An SFC spokesman yesterday declined to comment on the investigation process.

Mr Tong said: 'It is six months on and the SFC has still not yet completed its investigation. The commission should act faster and release its initial findings as soon as possible without waiting for the police investigation. All we want to know is why Citic Pacific lost such a huge sum of money.

'The foreign exchange hedging was supposed to reduce risks faced by the company but instead led to the loss of half its assets. The public wants to know the truth.'

Stephen Cheung Yan-leung, a professor of finance at City University of Hong Kong, said Citic Pacific should immediately impose risk management measures.

'The foreign exchange trading losses showed the company has a big problem in risk management measures. Chang Zhenming's top priority is to review the risk management system immediately,' Mr Cheung said.

Some critics have questioned why Mr Chang is taking on the dual roles of chairman and managing director.

A spokesman at Hong Kong Exchanges and Clearing said the code of best practice required listed companies to have separate people holding the positions.

If the company did not follow best practice, as is common in many other listed companies, it was not breaching any rules but needed to give an explanation.