Misery loves company. China Railway and China Railway Construction have joined Citic Pacific in revealing disastrous bets on foreign-exchange.
China Railway booked a $285 million loss and China Railway Construction booked a $45 million loss on forex operations in the first nine months of the year and in the third quarter respectively, Bloomberg reports. That combined $330 loss is dwarfed by the $2 billion in currency losses from unauthorized trades that Citic Pacific, the Hong Kong-listed arm of China’s largest state-owned investment company, revealed earlier this week.
No suggestion of any shenanigans at either of the rail companies; just old-fashioned misjudgment as both companies tried to put cash raised from recent share sales in Hong Kong to work. China Railway Construction, for example, put some of its money in to Australian dollar deposits, which offered a higher yield than yuan deposits. (Beijing wouldn’t let either company convert the Hong Kong dollars raised into yuan.) The Australian dollar fell 17% in the quarter. China Railways got tangled up in a convoluted hedge against its Australian dollar and other foreign-exchange exposures.
Chinese companies aren’t alone in posting losses on foreign-exchange hedges as record high volatility in currency markets wreakes havoc on companies’ hedges around the world, but these three cases highlight Chinese firms inexperience and ham-fistedness in managing currency and the other risks that come with their venturing out into the world. With $56 trillion in outstanding foreign-exchange over-the-counter derivatives in the world at the end of 2007, according to the Bank for International Settlements, more losses seem inevitable.