CITIC Pacific May Lose Up To HK$15.5 Billion

CITIC (#267) announced last night that a currency hedge transaction went wrong and the company may lose up to HK$15.5 billion.

This is a trading opportunity for those with "intestinal fortitude" i.e. guts. Based on the 2007 financials net equity was HK$59.8 billion. According to the most recent financials NAV is HK$66.73 billion (including net income in 1st 6 months of HK$4.38 billion). The no. of shares in issue is 2.193 billion; therefore NAV per share is HK$30.42 before any write-offs related to the "hedge".

Assuming the company loses all HK$15.5 billion, net NAV is HK$51.23 billion based on most recent figures, or HK$23.36 per share. If we assume that the company will earn another HK$4.38 billion in the 2nd half, the NAV would be HK$55.61 or HK$25.35 per share

At current market price of HK$8 per share, market value is HK$17.54 billion. The shares are trading at between 31% and 34% of projected and current NAV assuming total write-off.

The share price was down 41% from 7 Sept 2008 (when the problem was discovered) through 16 October 2008 (last Friday's price because trading was suspended on Monday 20 October 2008). During that time, the HSI was down only 23%.