Citic Pacific

Larry Yung’s daughter ‘hazy’ on details of meeting about Citic Pacific foreign exchange losses

Frances Yung testifies at Market Misconduct Tribunal

PUBLISHED : Monday, 21 December, 2015, 5:34pm
UPDATED : Monday, 21 December, 2015, 5:34pm

The daughter of princeling Larry Yung Chi-kin has told the Market Misconduct Tribunal she had “no idea” of the danger mounting foreign exchange losses posed to her former employer Citic Pacific, though she agreed that her memory of a key meeting when the firm’s losses were discussed was “hazy”.

Former senior finance executive Frances Yung Ming-fong was asked on September 8, 2008, by her direct supervisor, company director Leslie Chang Li-hsien, to tell the Hong Kong listed firm’s executive committee that approximately HK$377 million in losses were adding up as a result of numerous Australian dollar hedging products, called target redemption forward contracts, moving against the firm.

Hong Kong securities regulator, the Securities and Futures Commission, argues that meeting, alongside other evidence, demonstrates that Citic and its senior directors were aware the company was bleeding money ahead of a key stock exchange circular, dated September 12, 2008, that made no mention of any material changes to the company’s financial health.

It was very shocking to him [Larry Yung] that this product could bring such a big loss to the company
Frances Yung

Chang and Larry Yung, along with three other former directors, and the company itself, were “reckless” and/or “negligent” to sign off on that circular as it was “false or misleading”, the SFC is arguing in a case that is putting the spotlight on directoral responsibilities at listed companies. Frances Yung is not among the defendants.

A victory for the SFC at the tribunal could result in fines and directorship disbarments for those found at fault and would strengthen the regulator’s hand in the High Court, where it is seeking HK$1.9 billion in compensation for 4,500 affected investors who traded the company’s shares between September 12 and October 20, 2008, when Citic did issue a profit warning that sent its share price plummeting.

The company eventually reported HK$14.7 billion in losses as a result of accumulator-style hedging contracts where downside losses were magnified the more the Australian dollar weakened.

Now named Citic Ltd, the company took currency hedging positions to guard against rises in the Australian dollar against the US dollar as part of an ill-timed foray into an Australian mining venture, later bedevilled by cost overruns and a collapse in commodity prices.

Asked by Benjamin Yu SC, counsel for Larry Yung, whether she had any idea about the problems associated with the hedging positions, Frances Yung replied, “I had no idea.”

In one email dated September 6, 2008, that was read out in court, Chang wrote he was very concerned because the company potentially faced billions in losses. “At that time Leslie Chang was talking about a potential loss in terms of billions?” Yu asked. “Yes, that is correct”, Frances Yung replied.

Her father, the son of former Chinese vice-president Rong Yiren, “was absolutely shocked and very angry” to first learn the news, she told the tribunal. “It was a big shock to him. He always thought Leslie was a careful person. It was very shocking to him that this product could bring such a big loss to the company.”

Counsels for the defendants are arguing that losses were unclear before the September 12, 2008, circular. Much of the argument hinges around whether the losses were crystallised or not as the currency could have swung back the other way, turning a loss into a profit.

When queried by Jat Sew-tong SC, counsel for defendant and former Citic managing director Henry Fan Hung-lin, why at the September 8, 2008, meeting she had said the loss of more than HK$300 million “was not a problem”, Frances Yung replied that she did not remember saying those words.

“I did not realise it was huge problem until it was too late,” she said, agreeing with Jat’s assessment that she had a “hazy recollection” of the meeting.