100%(5)5 out of 5 people found this document helpful
This preview shows page 1 - 4 out of 14 pages.
KAPLAN UNIVERSITYASSIGNMENT 1 UNIT 2CASE ANALYSIS: CORPORATE GOVERNANCE AT CITIC PACIFICBY CARLOS ESTRELLAAC557-01N: INTERNAL CONTROL ASSESSMENT AND DESIGNINSTRUCTOR: BUNNEY SCHMIDTAUGUST 12, 2013
C a s e : C o r p o r a t e G o v e r n a n c e a t C i ti c P a c i fi cP a g e | 2IntroductionCitic Pacific (China International Trust Investment Corp.), is an investment company ofChina. It was founded by Yiren Rong in 1978. The main purpose of Citic Pacific was be the firstof the reform in the financial sector; attract foreign investment and technology to China inaddition, to develop international business. Citic Pacific is specialized in manufacturing specialsteel, mining of iron ore and the development of property in China. Citic Pacific also hadinvested in industries such as aviation, civil infrastructure, energy and other industries. Thecompany was considered to be a company "red chip" main; therefore, very popular amongforeign investors, who wanted to be part of the economy in China boom and the high standardsof Hong Kong's corporate governance. The analysis of this case was based in issues such as thecomposition of the Board of Directors, risk management, Executive compensation and othercorporate governance practices.Case OverviewCitic Pacific was proud of its corporate governance. The annual accounts report for 2007declared that was committed to the standards of corporate governance and business practices offirst class that extends beyond the fulfillment of the mandatory requirements as the of theCompanies Ordinance, accounting standards and the stock exchange. But on 20 October 2008,Citic Pacific announced to the public that would lose HK$ 15.5 billion (US $2 billion), due toforeign exchange exposures. The strangest was that the report was communicated six weeks afterthe occurred. The price of Citic Pacific shares dropped dramatically 55.1% to HK$ 6.52 the sameday. Citic Pacific had invested in a project of mining of iron ore in Western Australia. Thecapital estimated to 2010 of expenditure requirement was $1.6 billion (US $ 1.04 billion). Also,
C a s e : C o r p o r a t e G o v e r n a n c e a t C i ti c P a c i fi cP a g e | 3there was a lower requirement for capital of €85 million ($ 107 million). Because they wereappreciating the Australian dollar and the Euro against the US dollar, the company wanted toensure the price that would have to pay for this investment. The company entered into derivativecontracts of currency based on its assumption that would continue to appreciate the Australiandollar and the euro. However, the Australian dollar and the euro depreciated against the dollar.This produced a great loss for the company. The incident pointed out that the Citic Pacificinternal risk management and its Board of directors were responsible for what happened.