By Theresa Tang and Wendy Leung
April 9 (Bloomberg) -- Larry Yung’s resignation as Citic Pacific Ltd.’s chairman may prompt “drastic” changes as Chang Zhenming today takes the reins of a company mired in a police probe and $1.9 billion of currency losses.
Citic Pacific shares surged 12 percent in Hong Kong after Yung, 67, and Managing Director Henry Fan, 60, quit yesterday, following a police raid on the offices of the investment company controlled by China’s cabinet. Chang, 52, was appointed to both posts by Citic’s Beijing-based parent.
“We believe drastic changes are needed to turn the company around,” analysts at Bank of America Corp.’s Merrill Lynch & Co. unit led by Christie Ju wrote in a report to clients. Yung’s resignation was “positive, but not enough,” according to the analysts, who wrote in an April 5 report that Citic Pacific may need to sell some of its assets.
Citic Pacific jumped to HK$10.62, the highest level since Jan. 12, at the 4:00 p.m. close. The stock resumed trading today after it was suspended April 3 because of the police raid. The Hang Seng index rose 3 percent.
“With Chang as the CEO, the company will move to a new direction,” said Liu Yang, who helps manage $1.8 billion at Atlantis Investment Management Ltd. in Hong Kong. “To some extent it’s very positive for the company going forward” with Yung’s departure, Liu said.
Simpler Structure
Chairman since Citic Pacific’s inception in 1990, Yung expanded into aviation, power plants, real estate development and steelmaking. The son of a former Chinese Vice President, he was forced to seek a bailout from Beijing after Citic disclosed losses on wrong-way currency bets that had been designed to hedge an iron-ore project in Australia.
“Citic Pacific may want to simplify the structure,” said shareholder activist David Webb, adding that the company has too many businesses. “Otherwise, they may just become a zombie conglomerate with no great strategy at all.”
China has previously turned to Citic Group’s Chang when investors’ confidence in its companies has been shaken. Chang was appointed acting chairman of state-owned lender China Construction Bank Corp. after then Chairman Zhang Enzhao resigned for undisclosed reasons. Chang helmed the lender’s public share sale in 2005.
“We expect the chairman to speed up the progress of non- core asset disposals,” Citigroup Inc. analysts led by Anil Daswani wrote in a report distributed today about the start of Chang’s reign. The company may sell its power assets, Hong Kong tunnel holdings and its stake in Cathay Pacific Airways Ltd., the analysts wrote.
Chang may meet the press in a few days to talk about his new position, Radio Television Hong Kong reported today, citing the executive. No other details were provided.
First Annual Loss
Moody’s Investors Service and Standard & Poor’s Ratings Services both said the management change at Citic Pacific won’t have an immediate impact on its debt ratings. Moody’s has a ‘Ba1’ rating and Standard & Poor’s has a ‘BB+’ recommendation.
Citic Pacific on March 25 reported its first annual loss of HK$12.7 billion. The company announced its currency losses in October from contracts to fund an iron ore mine in Australia. Bets that the Australian dollar would gain incurred losses after the currency tumbled.
Financial Director Leslie Chang and Financial Controller Chau Chi Yin were ousted because of the bets. Carl Yung and Frances Yung, the son and daughter of Larry, left the company, the Standard newspaper reported today, citing unidentified people. Zhao Tong at Brunswick Group Ltd., an outside spokeswoman for Citic Pacific, declined to comment.
Citic Bailout
As part of the bailout, Citic Group bought convertible bonds, which it used to double its stake in the Citic Pacific to 57.6 percent, and assumed some of the currency losses. Yung’s stake was diluted to 11.5 percent from 19.1 percent.
The Hong Kong Commercial Crime Bureau on April 3 demanded that Citic Pacific and its directors provide information on currency contracts entered in 2007 and 2008, and statements made between July 1, 2007, and March 16, 2009. The Securities and Futures Commission is investigating Yung, Fan and 15 directors.
The police raid “had a great impact in society,” Citic Pacific said in its statement to the Hong Kong stock exchange yesterday. “Faced with this reality, Mr. Yung believed that his resignation would be in the best interest of the company.”
There haven’t been any charges or arrests, Citic Pacific said. The Securities and Futures Ordinance allows civil or criminal punishment for market misconduct. The maximum penalty is 10 years in prison and a fine of HK$10 million.
Son of Rong
Born in Shanghai in 1942, Yung is the son of former Chinese Vice President Rong Yiren. When many of China’s wealthy fled the nation before the Communist Party took power in 1949, Rong stayed and in 1956 handed over the family’s mainland holdings to the government. Rong was named Shanghai vice major the next year and was vice president of China from 1993 to 1998.
Mao Zedong called the Rong family: “China’s first batch of indigenous capitalists; the one true Chinese conglomerate in the world.” In 1979, Rong set up China’s first state-owned investment corporation, today called Citic Group, under the direction of Deng Xiaoping.
His family’s wealth afforded Yung, the Cantonese pronunciation of Rong, a red convertible sports car in his teens, with which he drove friends around 1950s Shanghai. He also regularly treated friends to dinners, Yung told the Guangzhou, southern China-based Yangcheng Evening News in 2002.
Yung and Fan established Citic Pacific in Hong Kong in 1990. The company’s backdoor listing helped make Yung China’s richest man as recently as 2005, according to Forbes Magazine.
Race Horses
That wealth allowed Yung to acquire racehorses in Hong Kong, where he was one of 12 board members, or stewards, at the Hong Kong Jockey Club from 1994 to 2004. He’s had 13 racehorses compete at the club and won almost HK$100 million in prize money, race records showed.
Yung’s wealth has plummeted since Citic announced its currency losses. He fell to 63 on Forbes’s 2008 list of China’s richest, released after the losses, with $660 million of estimated wealth. Yung had been ranked the nation’s ninth richest man in Forbes’s 2007 list with $3.65 billion.
To contact the reporters on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net; Theresa Tang in Hong Kong at ttang3@bloomberg.net
Posts
No comments:
Post a Comment