Taiwan Central Bank Pledges to Curtail Run on Funds (Update3)
July 16 (Bloomberg) -- Taiwan's central bank said it may step in to ensure stability in the island's NT$2.9 trillion ($86 billion) mutual funds industry after investor withdrawals forced five funds to halt redemptions.
An estimated NT$240 billion worth of bond funds have been redeemed this week, according to the Commercial Times. The rush is ``irrational'' and sufficient money will be made available to provide ``liquidity to stabilize money markets,'' the bank said in a statement. The government didn't release any figures on size of redemptions.
The problem ``was probably caused by Procomp,'' Jong Huey- jen, deputy director-general at the Securities and Futures Bureau, said in a phone interview. She was referring to Procomp Informatics Co.'s default on a bond payment due on June 16. ``Everybody now panics when hearing about bonds. This is an issue of confidence.''
Procomp Informatics Co., which makes chips used in communications and networking equipment, said it was unable to make payment on NT$2.98 billion of debt. The company's shares were halted by regulators on June 23. About 10,000 investors were hurt by the default, the Securities and Futures Investors Protection Center said.
`Crisis of Confidence'
The default sparked a ``crisis of confidence'' in the quality of financial reporting by companies in Taiwan, Standard & Poor's said in a report earlier this month.
Taiwan's 10-year government bond was little changed as of 4:10 p.m., local time. The yield on the 2.375 percent bond maturing in March 2014 rose 0.1 basis point to 2.82 percent, trimming an earlier increase of 7.4 basis points, according the Gretai Securities Market. A basis point is 0.01 percentage point.
``The central bank's promise to maintain stability provided assurance to investors in all financial sectors,'' said Jim Chen, a bond trader at International Bills Finance Corp. in Taipei.
United Securities Investment Trust Corp., a closely held mutual fund, halted redemptions on its three funds earlier this week when it ran out of cash. Two more funds were subsequently halted, Jong said. |
