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PR Newswire
14-05-2021, 07:08 PM
opmi,
This investment happened in 2008 and some information comes from : https://webb-site.com/articles/citicbomb.asp
The losses involve exotic foreign exchange forward contracts such as "dual currency target redemption forward contracts", where they get a limited upside (due to a knock-out clause) and an unlimited downside, being required to take the weaker of the Australian dollar and Euro. Another series of "AUD target redemption forward contracts" involves receiving up to AUD9.05bn in monthly installments up to October 2010. The counter-party bank(s) for these contracts have not been disclosed, and CP did not say when the contracts were entered into. They should tell investors how long this time-bomb was ticking. If the exposure pre-dates the interim report for 30-Jun-08 or even the audited annual report for 31-Dec-07 then it raises additional questions. On this, the two reports said (p120 of the annual report):
"The functional currency and future cash flow for Group's Australian Iron Ore Mining project is denominated in USD. Substantial portion of the project infrastructure / pre-completion operating expenditure is projected to be denominated in non-USD currencies. Foreign exchange forward contracts and structured forward instruments are employed to hedge or minimise the non-USD currency exposure."
The company survived, but the Chairman Larry Yung left the company.
This investment happened in 2008 and some information comes from : https://webb-site.com/articles/citicbomb.asp
The losses involve exotic foreign exchange forward contracts such as "dual currency target redemption forward contracts", where they get a limited upside (due to a knock-out clause) and an unlimited downside, being required to take the weaker of the Australian dollar and Euro. Another series of "AUD target redemption forward contracts" involves receiving up to AUD9.05bn in monthly installments up to October 2010. The counter-party bank(s) for these contracts have not been disclosed, and CP did not say when the contracts were entered into. They should tell investors how long this time-bomb was ticking. If the exposure pre-dates the interim report for 30-Jun-08 or even the audited annual report for 31-Dec-07 then it raises additional questions. On this, the two reports said (p120 of the annual report):
"The functional currency and future cash flow for Group's Australian Iron Ore Mining project is denominated in USD. Substantial portion of the project infrastructure / pre-completion operating expenditure is projected to be denominated in non-USD currencies. Foreign exchange forward contracts and structured forward instruments are employed to hedge or minimise the non-USD currency exposure."
The company survived, but the Chairman Larry Yung left the company.