The best run companies are not immune to volatile markets, as Power Corp. showed Monday with a rare stumble in its foreign holdings.
Power Corp. holds a 7 per cent stake in a Hong Kong industrial conglomerate named Citic Pacific. On Monday, Citic sideswiped investors by warning of $1.9-billion in mark-to-market losses from leveraged foreign exchange contracts. The hit stems from forex derivatives put in place on an Australian iron ore project, and two Citic Pacific senior finance executives departed as the news was announced.
The loss represented close to half of Citic's market value on Friday. Analysts see the hit as immaterial to Power Corp.'s overall financial health, given the size and scope of the Montreal-based conglomerate. However, this is a seldom-seen hiccup for a Desmarias family-controlled company that has first-class foreign assets, and owns some of Canada's premier financial services companies.
Citic Pacific seems likely to survive, as Chinese state-owned parent CITIC Group agreed to arrange a standby loan facility of $1.5-billion.