Citic Pacific to Invest $2.2 Billion in Steel, May Sell Assets

By Theresa Tang

May 25 (Bloomberg) -- Citic Pacific Ltd., rescued by China after posting the biggest currency derivative loss by a Chinese company, plans to invest 15 billion yuan ($2.2 billion) in its iron ore and steel businesses, and may sell other assets.

The company will conduct a review of its assets, and any restructuring will take “some time,” Chairman Chang Zhenming, who was appointed last month after the resignation of Larry Yung, said today in Hong Kong. There are no plans to sell shares to raise funds, he said.

Yung and former Managing Director Henry Fan resigned last month after police raided the Hong Kong-listed company in relation to the currency losses. Chang needs to make “drastic changes” to turn around the developer and steelmaker, Bank of America Corp.’s Merrill Lynch & Co. unit said in April.

“Those businesses that aren’t efficiently managed by Citic Pacific, or the returns are low, would be put through a sales process,” Chang, 52, said.

Citic Pacific dropped 0.4 percent to close at HK$16 in Hong Kong trading. The shares have climbed 69 percent since the appointment of Chang on April 8, outpacing the 18 percent gain in the city’s benchmark Hang Seng index.

The planned 15 billion yuan investment in its Australian iron ore mine and the steel business will be made in the next two years, Chang said. The mine will start production in September 2010, he said.

Stake Sales

There are no plans to sell Citic Pacific’s holding in Cathay Pacific Airways Ltd. or its tunnel assets in Hong Kong, Chang said. The company, which last month announced the sale of a 20 percent stake in a power supplier, also operates power plants, and has stakes in companies selling cars, distributing food products, and providing phone services.

The company will review its businesses “in terms of market share, company outlook, the degree of Citic Pacific’s involvement, and whether possible synergies with our parent will add value,” Chang, who had also assumed the role of managing director, said.

Citic Pacific’s businesses were “running smoothly” in the first quarter, Chang said, without elaborating.

The company in March posted its first annual loss of HK$12.7 billion ($1.6 billion) in almost two decades. It bought currency contracts to fund the iron ore mine in Australia, and bets that the Australian dollar would gain incurred losses after the currency tumbled.

Former Chairman Yung was forced to seek a state bailout from parent Citic Group, controlled by China’s cabinet. Citic Group bought convertible bonds, which it then used to double its stake to 57.6 percent, and assumed some of the losses.

Currency Contracts

All the Australian currency derivative contracts have been restructured and Citic Pacific won’t be affected by future moves in the currency, Chang said today, without giving details. The company has set up a committee to monitor the use of financial instruments, he said.

The company doesn’t have issues with its cash flow, and would have “no problem” raising funds from banks should it need to, Chang said.

Citic Pacific is seeking to hire a new managing director in the next few months, though Chang said he intends to remain as the chairman for the long term.

Chang declined to comment on the police probe. Yung’s three children are still working in the company, he said.

To contact the reporter on this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net