China's National Audit Office accused the $575 billion sovereign wealth fund China Investment Corp., Beijing, of mismanaging investments both overseas and at home.
“Inadequate due diligence and mismanagement before and after investments” caused losses in CIC's overseas investment from 2008 to 2013, and problems of “insufficient disciplines of external managers' appointments” existed in some foreign projects, a report from the audit office said.
Auditors also found mismanagement and legal violations in CIC's domestic subsidiaries.
For example, Central Huijin, a wholly owned subsidiary of CIC, which holds controlling stakes in key state-owned financial institutions in China, neglected the required assets appraisal in an equity transfer of Guotai Asset Management, a local securities company. This caused a loss of 1.26 billion yuan ($202 million), the report said.
Zhongtou Fazhan, another local subsidiary whose mandate is initial land development, was accused of investing 8.3 billion yuan in later stages of real estate development by March 2013, the report said.
In addition to CIC's misconduct in making investments, auditors also pointed out the company's violations against accounting disciplines by excluding $10 million in gains from private equity deals from its formal accounts.
CIC said in a statement it will “strengthen due diligence, enforce management after investing and standardize the selections of external managers.”
CIC said it has ordered Central Huijin and other subsidiaries to regulate their management of asset transfers and ensure the required asset appraisals.
CIC has included all private equity gains in its accounts and will strictly follow regulatory disciplines in accounting practices, the statement said. Zhongtou Fazhan and the other domestic subsidiaries are disposing of inappropriate investments and refocusing on their main investing strategies.
CIC said in the statement that it has dealt with the people responsible for issues exposed by the audit, but it does not offer further specifics.
