Currency Losses Hit Two China Railroads
Two Chinese railroad companies disclosed a total of more than $300 million in losses on currency investments Thursday, just days after a Hong Kong conglomerate said it could lose as much as $1.9 billion from its own currency agreements.
The disclosures came amid selloffs in several other stocks, in what some analysts described as an overreaction, in many cases, that underscored broader market jitters about exposure to volatile currencies and commodities.
China Railway Group Ltd. said Thursday it had incurred losses of 1.94 billion yuan, or about $284 million, as of Sept. 30, from structured deposits based on foreign currencies, particularly the rapidly falling Australian dollar. Its shares plunged 7.1% to 3.80 Hong Kong dollars (49 U.S. cents).
China Railway Construction Corp., which like China Railway Group is state-controlled, said it lost 320 million yuan on its mix of foreign-exchange holdings during the third quarter. Shares of the railroad construction company dropped 2.5% to HK$7.90. Officials at the company couldn't be reached.
On Wednesday, China Railway Group and China Railway Construction fell 20.6% and 18.9%, respectively, on fears they might be exposed to currency shifts.
China Railway Group board secretary Yu Tengqun said the railroad operator exited from its structured deposits in August and September. He also said his company's investments didn't resemble those made by Citic Pacific Ltd., the property and infrastructure conglomerate that earlier this week shocked investors with news of the potential for big losses because of leveraged positions on the Australian dollar. Investors sent its shares down 66% over the next two days.
Investors in Hong Kong went on the hunt for the next potential victim. Shares in Shui On Land Ltd. dropped 25% Wednesday on local media reports that the property developer was exposed to losses on a U.S. dollar currency swap. Shui On late Wednesday pointed to previous disclosures that described terminating the contracts in the spring, resulting in a loss of 115 million yuan. Its shares bounced back 14% Thursday.
Hong Kong-listed China State Construction International Holdings Ltd. said Thursday that it had not entered into any currency interest-rate swap arrangements or other derivatives. Its stock had fallen 12.5% the day before.
Mining company Jiangxi Copper Co. Tuesday said it suffered a 172 million yuan 'investment' loss in the third quarter, which knocked its overall net profit down to 919.5 million yuan. Details weren't disclosed, but company board secretary Pan Qifang said it decided to announce earnings a day earlier than scheduled as investors flooded the company with questions about its investment performance. Its shares fell 7.9% Thursday.
'The market is reacting irrationally because of the panicky overall state,' says Henry Ho, a Hong Kong-based strategist for CLSA Asia-Pacific Markets. Mr. Ho issued a report on Tuesday listing 26 Hong Kong-listed stocks with investments in structured products, including China Railway Group.
China Railway Group's Mr. Yu said foreign currency investments were made partly because government rules prevented the company from moving proceeds of last year's initial public offering into Chinese yuan. His comment highlighted how tight exchange rate controls encourage Chinese companies to keep their money offshore, potentially raising their currency risks.
Within the past year, stock offerings by the two Chinese rail companies raised a combined $11 billion, spread between the Shanghai and Hong Kong markets. Without directly addressing the government restrictions, the companies said separately in their share-offering documents that the nearly $5 billion they generated in Hong Kong wouldn't be returned to mainland China anytime soon.
According to some analysts, strength in the Australian dollar earlier this year may have made it look like a safe place for Chinese companies to keep money amid gains in their own country's currency. China Railway Group said it had about $1.5 billion in Australian-dollar structured deposits as part of its plan to fund projects in that country, but that their value had declined by the time they expired at the end of September. |
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