Indonesia crux brings Peregrine to its knees<\/p>\n
HONG KONG (Reuters): Choked with emotion, the founders of
\nPeregrine Investments Holdings Ltd told yesterday how a meltdown
\nin Indonesian markets helped bring one of Asia's largest
\nindependent investment banks to its knees.<\/p>\n
Banks and the Hong Kong government denied the firm help after
\na crucial deal to provide vital funds collapsed last week, and on
\nTuesday Price Waterhouse was named to liquidate its assets.<\/p>\n
"What happened was a complete meltdown in a country,"
\nPeregrine chairman and co-founder Philip Tose told a news
\nconference, his voice quavering as he discussed the investment
\nbank's plight.<\/p>\n
"As far as Asia was concerned, Indonesia was regarded as
\npossibly the best candidate to recover from the economic
\nturmoil... However, clearly Indonesia did disappoint everyone."<\/p>\n
As business prospects faded in Asia, Peregrine reduced its
\nbalance sheet to around US$3.2 billion in June 1997 from US$5.3
\nbillion by selling assets.<\/p>\n
Peregrine reported net profit of HK$386.70 million for the 10
\nmonths to October 31, 1997.<\/p>\n
Tose said the drastic depreciation of the Indonesian rupiah
\ntook a direct hit at the company's balance sheet at the end of
\n1997.<\/p>\n
"At the end of November, which was our financial year end, the
\nsituation was not really markedly changed from that in October.
\nClearly post financial year-end events had changed that very
\ndramatically indeed," said Tose.<\/p>\n
"Once Indonesia was downgraded and once the rupiah had halved
\nfrom 5,000 to 11,000, that would definitely have necessitated our
\ntaking a significant write down... and would have put us into
\nloss for the year ended November, not significant but it would
\nhave to put us into a loss."<\/p>\n
"However the turmoil that ensued grew greater rather than
\nless," said Tose. "We got caught as a result of the illiquidity.
\nWe were unable to get rid of what we've got.<\/p>\n
"The position of the group was that it was trading profitably
\nbut that we had a very tight funding problem."<\/p>\n
Local newspapers have said one deadly blow was from a loan to
\nan Indonesia taxi and bus company, PT Steady Safe.<\/p>\n
"It was an unfortunate transaction but it certainly was not
\nthe sole reason for us having the problems that we did," said
\nTose, in answer to a question about the newspaper reports.<\/p>\n
"We have a number of other assets on our books that are
\nrelatively illiquid -- 70 percent of Kwong Sang Hong, we have a
\nnumber of direct investments -- but clearly the exposure to the
\nbond book was substantial and did play a role." Hong Kong-based
\nKwong Sang Hong's principal business includes investment holding
\nand property trading.<\/p>\n
Zurich Center Investments Ltd agreed in November to subscribe
\nfor US$200 million worth of 7.5 percent convertible preference
\nshares of US$1,000 each in Peregrine.<\/p>\n
The shares were convertible into ordinary shares at HK$8.00
\nper share but Peregrine shares slumped since then and were at
\nHK$4.30 before trading was suspended last Wednesday.<\/p>\n
Peregrine was unable to reach a deal with ZCI and was forced
\ninto default when a funding line of US$60 million was withdrawn
\non Friday.<\/p>\n
"It became therefore virtually certain that from that moment
\non we would be unable to continue," said Tose.<\/p>\n
"We had a meeting with a number of senior creditor banks on
\nSunday to put certain proposals to them. Those proposals were not
\nsatisfactory, and you know the rest."<\/p>\n
Peregrine sought help from the Hong Kong government which was
\nrefused. "There are very strict regulations governing the use of
\nthe public money funds that they have," said Tose.<\/p>\n
"One of those must be that there is a highlighted or a
\nsystemic risk within Hong Kong and clearly -- obviously to our
\ndisappointment -- they decided that there was not."<\/p>\n
Price Waterhouse partner David Hague said the liquidator's
\ntask was going to be difficult. "The situation is very fluid and
\nis changing by the minute as the market changes," he said<\/p>\n
But potential buyers, including Chinese parties, have
\nexpressed interest in parts of Peregrine, and Hague said he was
\nhopeful parts of the business could be sold.<\/p>\n
"(We) are working to find firms that are interested in
\nacquiring the equities group from the old Peregrine Securities
\nand Peregrine Capital teams and we have been approached by a
\nnumber of firms that are interested in that, and clearly that is
\none of our absolute top priorities," added Tose.<\/p>\n
Shedding tears, Peregrine managing director Francis Leung said
\nhe hoped to keep helping China-related firms raise capital.<\/p>\n
"I want to do something for China. I hope to contribute by
\nhelping Chinese enterprises and red chips to raise funds."<\/p>\n
Peregrine Asset Management, which is 75 percent owned by
\nPeregrine and 25 percent owned by directors, holders and
\nemployees, said it was talking with 12 potential buyers and hopes
\nto announce a sale by the end of the week.<\/p>\n
"We are talking to companies in Europe, America and Asia,"
\nchief executive officer Bruce Seton told Reuters.<\/p>\n
Peregrine Securities Taiwan Ltd -- 61.45 percent owned by
\nPeregrine Investments -- said on Tuesday that several Taiwan and
\noverseas suitors were keen to buy the parent's stake
\nAdditionally, Daehan Investment Banking Corp said it was
\npositively considering a request from Peregrine to buy all of its
\n44 percent stake in a joint venture securities firm in Seoul.<\/p>",
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