Beijing-backed mining-to-property conglomerate Citic Pacific has been dealt a major blow by one of the world's leading credit risk assessment agencies.
Standard & Poor's slashed the company's credit rating to junk status yesterday and said it might downgrade the rating further.
The decision to demote Citic Pacific to a B-plus rating, which is one notch below what the agency calls 'investment grade' and incredibly low for a firm backed by the central government, was sparked by Citic's revelation last week that the cost of its Sino Iron iron ore development in Western Australia had ballooned by US$900 million.
The project, which was already slated to cost US$5.3 billion had already suffered cost blowouts and delays. Analysts now say Citic Pacific probably did not understand the risks of its high-stakes foray into mining outside China.
'This is a major greenfield project outside the company's own market. They probably underestimated some of the challenges,' Standard & Poor's Lawrence Lu said. 'We are really not sure whether they can bring the project on stream.'
This is the latest in a pile-up of problems for Citic Pacific. The company is also mired in a Hong Kong fraud investigation into the ill-fated decision it made in autumn 2008 to conceal a HK$15.5 billion derivatives loss for six weeks.