It would now be very expensive for a foreign company to make a t/o bid.
Interesting article below
Currency trades risky for Chinese businesses
Editor:Sharon Lee Source:ÖйúÈÕ±¨Íø Updated: 2008-10-22 9:37:29
Chinese companies have been involved in some risky foreign currency trading amid the financial crisis, which has made foreign-exchange rates extremely volatile and hard to predict. AFP
Chinese companies have been involved in some risky foreign currency trading as they have increasingly bought mines and rivals in Australia to secure raw supplies.
CITIC Pacific, the Hong Kong arm of the nation's biggest State-owned investment company, made a HK$8.5 billion investment in an Australian iron ore mine last year, following a rise in the Aussie dollar.
The red-chip group purchased equipment and supplies in Australian dollars and euros. To help fund that project, group finance director Leslie Chang entered derivative contracts that stood to profit as long as the US dollar weakened against the Australian dollar.
It seemed a smart bet until the financial crisis pushed down commodity prices this summer and sent foreign-exchange rates zigzagging. And the currency bet is likely to wipe out about HK$15.5 billion from the company's balance sheet, easily erasing the HK$4.38 billion profit it made in the first-half of this year.
The loss may be the biggest derivatives loss reported by a Chinese company.
The Australian dollar has weakened nearly 30 percent against the US currency since July, when falling commodity prices knocked it from its high for the year of 97.85 Australian cents per US dollar.
Hunan Nonferrous Metals Corp, China's largest zinc producer, has invested in Compass Resources NL, an Australian minerals exploration and development company, and agreed to develop a metal mine in Australia's Northern Territory. The total investment may be worth HK$886 million. Hunan Nonferrous said it has no foreign exchange hedges for its Australian investments, saving them from losses after the Aussie dollar dropped.
Aluminum Corp of China, China's largest maker of the lightweight metal, is still studying its planned HK$16.02 billion bauxite project in Queensland and hasn't considered any hedging, said Zhao Zhengang, general manager for overseas projects at the company.
Sinosteel Corp, China's second-largest iron ore trader, this year bought Perth-based iron ore producer Midwest Corp for HK$7.26 billion and also has a stake in Murchison Metals.
Anshan Iron & Steel Group is investing in a HK$9.6 billlion iron ore project with Gindalbie Metals.
In 2005, a copper trader at China's State Reserve Bureau took a massive loss-making short position that cost the government $606 million. Salvage efforts by the Chinese government cut losses to about $114 million. The trader was sentenced to seven years in jail.
Four years ago, Singapore-listed jet fuel trader China Aviation Oil announced losses of $550 million as a result of speculative derivatives trades that triggered its near-collapse.
MMX Price at posting:
53.0¢ Sentiment: None Disclosure: Not Held
