Indonesia crux brings Peregrine to its knees

Indonesia crux brings Peregrine to its knees

HONG KONG (Reuters): Choked with emotion, the founders of Peregrine Investments Holdings Ltd told yesterday how a meltdown in Indonesian markets helped bring one of Asia's largest independent investment banks to its knees.

Banks and the Hong Kong government denied the firm help after a crucial deal to provide vital funds collapsed last week, and on Tuesday Price Waterhouse was named to liquidate its assets.

"What happened was a complete meltdown in a country," Peregrine chairman and co-founder Philip Tose told a news conference, his voice quavering as he discussed the investment bank's plight.

"As far as Asia was concerned, Indonesia was regarded as possibly the best candidate to recover from the economic turmoil... However, clearly Indonesia did disappoint everyone."

As business prospects faded in Asia, Peregrine reduced its balance sheet to around US$3.2 billion in June 1997 from US$5.3 billion by selling assets.

Peregrine reported net profit of HK$386.70 million for the 10 months to October 31, 1997.

Tose said the drastic depreciation of the Indonesian rupiah took a direct hit at the company's balance sheet at the end of 1997.

"At the end of November, which was our financial year end, the situation was not really markedly changed from that in October. Clearly post financial year-end events had changed that very dramatically indeed," said Tose.

"Once Indonesia was downgraded and once the rupiah had halved from 5,000 to 11,000, that would definitely have necessitated our taking a significant write down... and would have put us into loss for the year ended November, not significant but it would have to put us into a loss."

"However the turmoil that ensued grew greater rather than less," said Tose. "We got caught as a result of the illiquidity. We were unable to get rid of what we've got.

"The position of the group was that it was trading profitably but that we had a very tight funding problem."

Local newspapers have said one deadly blow was from a loan to an Indonesia taxi and bus company, PT Steady Safe.

"It was an unfortunate transaction but it certainly was not the sole reason for us having the problems that we did," said Tose, in answer to a question about the newspaper reports.

"We have a number of other assets on our books that are relatively illiquid -- 70 percent of Kwong Sang Hong, we have a number of direct investments -- but clearly the exposure to the bond book was substantial and did play a role." Hong Kong-based Kwong Sang Hong's principal business includes investment holding and property trading.

Zurich Center Investments Ltd agreed in November to subscribe for US$200 million worth of 7.5 percent convertible preference shares of US$1,000 each in Peregrine.

The shares were convertible into ordinary shares at HK$8.00 per share but Peregrine shares slumped since then and were at HK$4.30 before trading was suspended last Wednesday.

Peregrine was unable to reach a deal with ZCI and was forced into default when a funding line of US$60 million was withdrawn on Friday.

"It became therefore virtually certain that from that moment on we would be unable to continue," said Tose.

"We had a meeting with a number of senior creditor banks on Sunday to put certain proposals to them. Those proposals were not satisfactory, and you know the rest."

Peregrine sought help from the Hong Kong government which was refused. "There are very strict regulations governing the use of the public money funds that they have," said Tose.

"One of those must be that there is a highlighted or a systemic risk within Hong Kong and clearly -- obviously to our disappointment -- they decided that there was not."

Price Waterhouse partner David Hague said the liquidator's task was going to be difficult. "The situation is very fluid and is changing by the minute as the market changes," he said

But potential buyers, including Chinese parties, have expressed interest in parts of Peregrine, and Hague said he was hopeful parts of the business could be sold.

"(We) are working to find firms that are interested in acquiring the equities group from the old Peregrine Securities and Peregrine Capital teams and we have been approached by a number of firms that are interested in that, and clearly that is one of our absolute top priorities," added Tose.

Shedding tears, Peregrine managing director Francis Leung said he hoped to keep helping China-related firms raise capital.

"I want to do something for China. I hope to contribute by helping Chinese enterprises and red chips to raise funds."

Peregrine Asset Management, which is 75 percent owned by Peregrine and 25 percent owned by directors, holders and employees, said it was talking with 12 potential buyers and hopes to announce a sale by the end of the week.

"We are talking to companies in Europe, America and Asia," chief executive officer Bruce Seton told Reuters.

Peregrine Securities Taiwan Ltd -- 61.45 percent owned by Peregrine Investments -- said on Tuesday that several Taiwan and overseas suitors were keen to buy the parent's stake Additionally, Daehan Investment Banking Corp said it was positively considering a request from Peregrine to buy all of its 44 percent stake in a joint venture securities firm in Seoul.