Case Analysis Corporate Governance at Citic Pacific -...

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KAPLAN UNIVERSITY ASSIGNMENT 1 UNIT 2 CASE ANALYSIS: CORPORATE GOVERNANCE AT CITIC PACIFIC BY CARLOS ESTRELLA AC557-01N: INTERNAL CONTROL ASSESSMENT AND DESIGN INSTRUCTOR: BUNNEY SCHMIDT AUGUST 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 c P a g e | 2 Introduction Citic Pacific (China International Trust Investment Corp.), is an investment company of China. It was founded by Yiren Rong in 1978. The main purpose of Citic Pacific was be the first of the reform in the financial sector; attract foreign investment and technology to China in addition, to develop international business. Citic Pacific is specialized in manufacturing special steel, mining of iron ore and the development of property in China. Citic Pacific also had invested in industries such as aviation, civil infrastructure, energy and other industries. The company was considered to be a company "red chip" main; therefore, very popular among foreign investors, who wanted to be part of the economy in China boom and the high standards of Hong Kong's corporate governance. The analysis of this case was based in issues such as the composition of the Board of Directors, risk management, Executive compensation and other corporate governance practices. Case Overview Citic Pacific was proud of its corporate governance. The annual accounts report for 2007 declared that was committed to the standards of corporate governance and business practices of first class that extends beyond the fulfillment of the mandatory requirements as the of the Companies 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 $2 billion), due to foreign exchange exposures. The strangest was that the report was communicated six weeks after the occurred. The price of Citic Pacific shares dropped dramatically 55.1% to HK$ 6.52 the same day. Citic Pacific had invested in a project of mining of iron ore in Western Australia. The capital 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 c P a g e | 3 there was a lower requirement for capital of €85 million ($ 107 million). Because they were appreciating the Australian dollar and the Euro against the US dollar, the company wanted to ensure the price that would have to pay for this investment. The company entered into derivative contracts of currency based on its assumption that would continue to appreciate the Australian dollar 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 Pacific internal risk management and its Board of directors were responsible for what happened.

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