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China's sovereign fund mismanaged some investment: audit

BEIJING (Reuters) - China's $575-billion sovereign wealth fund mismanaged some of its overseas investments between 2008 and 2013 that led to losses, the country's top auditor said on Wednesday, without specifying the size of the loss.

The National Audit Office said some employees in China Investment Corp (CIC) [CIC.UL] did not conduct adequate due diligence before investing in 12 overseas projects in the last six years.

The CIC employees subsequently also failed to track the performance of these investments, it said.

The fund also breached regular procedures when it hired external managers for a few of its foreign projects, the report added.

In addition, several CIC units within China, such as Central Huijin, China Jianyin Investment, China Investment Development Co and China Zhongtou Trust Co, were also found to have irregularities in their businesses.

These include breaking away from their core businesses and venturing into the real estate sector, and funding illegal property projects.

Created in 2007, CIC is tasked to help China invest its $3.95 trillion-and-growing foreign exchange reserves. But because of the mammoth size of China's national savings, the government has formed other domestic funds that rival CIC in the hope of further improving investment returns.

CIC reported an annual return of 10.6 percent in 2012, reversing from 2011's loss of 4.3 percent. Its cumulative annualized return since inception is 5 percent.

The state auditor also released separate reports about Bank of China <601988.SS>, the country's fourth-largest bank, and Agricultural Development Bank of China, a state-owned bank that supports the government's farm policies.

The auditor found that six Bank of China <601988.SS> branches disbursed 6.4 billion yuan ($1.03 billion) of loans that violated China's lending policy in the past 10 years. It did not say if it conducted similar checks at other bank outlets.

Three other Bank of China branches were also found to have made 3.2 billion yuan worth of loans between 2009 and 2012 to businesses that were not involved in genuine trade.

China's policymakers try to control how much banks lend a year by telling banks when and how much to lend, and whom to lend to.

Similarly for Agricultural Development Bank of China, the auditor found that the bank made a total of 6.8 billion yuan worth of "irregular" loans by relaxing its lending rules in the six years to 2012.

The report said the Agricultural Development Bank had also disposed of 1.5 billion yuan worth of non-performing loans in the past five years through "irregular" means. No details were given.

Bank of China and Agricultural Development Bank issued statements on their websites on Monday and Wednesday respectively in response to the audit result, saying they had rectified the wrongdoings and measures have been taken to prevent risks from irregular loans.

CIC did not immediately respond to a request for comment.

(Reporting by Aileen Wang and Koh Gui Qing; Editing by Kim Coghill)

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