Citic Pacific has announced a massive bailout from parent company Citic Group. The bailout includes sales of covertible bonds and disposals of their toxic foreign-exchange contracts.
Citic Group has agreed to provide an HK $11.6 billion standby loan to Citic Pacific to be replaced by convertible bonds of the same amount. If the bonds were to be converted, Citic Group's stake in the company will increase from 29.44 per cent to 57.56 per cent.
The company reported that a total HK $16.8 billion was realised last night from all contracts, hence the parent company bailout. The contracts were currency contracts to hedge an ore investment project that would force the company to purchase Australian dollars at a rate of 0.87 to the US dollar. Yesterday the Australian dollar was trading at 0.65 to the US dollar.
All in all, this takes away the susceptibility the company had to attacks and Citic Pacific can resume focusing on it's core business. This company can be closely examined in the future.
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