Peregrine creditors tied to Indonesia

Peregrine creditors tied to Indonesia

HONG KONG (Reuters): Creditors of Peregrine Fixed Income -- the unit which took center stage in the fall of the Peregrine group -- are soon to learn how difficult it will be to retrieve sums due, with their fates largely tied to Indonesia.

The provisional liquidators of Peregrine Fixed Income Ltd and Peregrine Derivatives Ltd are due to hold creditors meetings on June 11 and 12. A large part of the money they hope to raise and return to creditors has been swallowed in Indonesia.

"That is where we are going to have problems collecting the money," Price Waterhouse partner Simon Copley said.

"Some of the corporates that owe us money from around the region, particularly Indonesia, really don't want to talk to us at all," Copley, who is on the provisional liquidation team, told Reuters in an interview yesterday.

It will be a number of months before liquidators pay an interim distribution to creditors. The recuperation process could take years and so far provisional liquidators have collected about US$260 million owed to Peregrine Fixed Income and about HK$350 million owed on the derivatives side.

"It is a good portion of the total outstanding," said Stephen Caswell, also a Price Waterhouse partner, adding however that the large transactions were the most problematic.

"There are very substantial assets still to be collected and problematic assets," said Caswell. "Obviously hand in hand with that goes that there are very substantial creditors as well."

Peregrine Investments Holdings Ltd was one of Asia's largest independent investment banks before the regional financial crisis led to its collapse in January, bringing down the Peregrine Fixed Income and Peregrine Derivatives units too.

Boxes of paperwork, piled high to the ceiling, are stacked against the walls of the once busy dealing room -- now the hushed working place of several lawyers and accountants who sift quietly through Peregrine's transactions.

"It has got to be the most complex liquidation there has ever been in Hong Kong," said Caswell. "This is the first big derivatives house which has gone into liquidation."

Provisional liquidators said the exposure on the derivatives side was greater than Peregrine's bond portfolio exposure.

Peregrine was the leading player in Asian bonds with a 200- strong team in fixed income at its peak. Its bond portfolio was valued at about US$2-3 billion in mid-1997.

"It is much reduced from that," said Caswell. "The objective is to get the best value out of that bond program."

Some creditors have asked the provisional liquidators not to sell the portfolio while the market is at low levels.

"They don't want a fire sale," said Caswell. "You might get better value for them holding them longer term."

One suggestion has been to put the bonds into a special purpose company and give shares of that company to creditors. "There are all sorts of ways of doing this," said Copley.

"But before that, you have got to get your hands on the things. The custodians in some cases have still got those bonds and are not too keen on giving them back until they are satisfied that their debts have been settled."

Peregrine's liquidation is bound to meet litigation along the way. A first writ was filed last week by Commerzbank AG which said Peregrine failed to remit US$40.12 million to the bank at the conclusion of a foreign exchange swap on Jan. 9.

It is claiming 73.23 million German marks and interest.

"We think that is settlement risk and therefore they should be an unsecured creditor," said Caswell. "It would be unusual in a case of this complexity if there wasn't a lot of litigation."

Hong Kong's Securities and Futures Commission has launched an investigation into the Peregrine case and provisional liquidators said they would be interested if the investigation brought up any evidence suggesting culpability. "Our sole focus would be if there is an avenue where by conducting a piece of litigation we could get more value to creditors," said Caswell.

"There are no plans in hand at the moment."