China Investment Corp. (CIC) says it will improve investment and due diligence procedures in response to an audit report that pointed out mismanagement in the US$575 billion sovereign wealth fund, according to an announcement.
The National Audit Office Of China conducted an audit from May to September 2013 on CIC’s 2012 books. The audit’s result was disclosed on June 18, which found questionable practices among CIC’s overseas investments.
From 2008 to 2013, there were six loss-making investments among CIC’s overseas activities. There were another four projects that showed floating losses and two with significant risks of losses. All were due to dereliction of duty by managers, and inadequate due diligence and risk management.
In addition, the audit found CIC’s certain wrongful practices among its domestic investments. In one transaction, Central Huijin Investment Ltd. sold its stakes in Chinese securities firm Guotai Junan Securities at cost, losing US$200 million in potential gains.
A subsidiary of CIC with a mission to engage in land investment and sales did not adhere to its objectives. Instead, it invested US$1.33 billion in property development.
Other wrongful practices include purchasing and selling equity stakes without a proper valuation procedure; extending financing to unqualified property projects; paying agency fees without proper procedure and leaving dormant bank accounts open without timely closure.
In the announcement, CIC lists an action plan to rectify each of the named mismanagement issues.
Founded in September 2007, CIC manages a total of US$575.2 billion, and is the world’s fourth-largest sovereign wealth fund.