Kowloon Development is off 42% today. Similar to Citic Pacific (267), the Company has announced that from 1 January 2008 to 22 October 2008 they have incurred a loss of HK$ 3.7 billion from over-the counter contingent forward agreements. So far only HK$ 688 million has been accounted for in their half year report. So there will probably be an additional HK$ 3 billion charge in their 2008 annual report.
According to the announcement, the company “has liquidated a majority of its financial investments” and “unwound a substantial portion of its forward agreements” in Oct 2008. I suspect this may be a big reason why the stock market can drop so much recently. Corporates, private banking customers are just unwinding their derivative contracts that have caused them so much trouble this year. People are receiving margin calls, they can’t do much but to cut their positions.
One thing interesting to see in their announcement is that the announcement is trying to avoid the use of words such as “accumulator” or “decumulator”. The way they describe how their so-called “over-the counter contingent forward agreements” work are just like the accumulator / decumulator contracts that every one in Hong Kong has talked or criticized about. Their forward agreements allow the company to “purchase or sell certain listed equity investments at a fixed price over a 52-week period.” This is exactly what an accumulator / decumulator does!
Kowloon Development, stop pretending! You are just like a lot of see-lais or housewives who have incurred big losses buying accumulator products.
