Peregrine plight: No major impact on China's enterprises. See the article at the end of the message.
In case you don't know, the fall of Peregrine Investment Holdings is mainly due to large amount of default loans to Indonesia.
As for this link, stratfor.com thanks for reminding me. I don't give too much credit on their comment and prediction. They also predicts that "it is clear to us that China will not be able to escape the process." I am not certain about that. I think most likely Hong Kong peg will remain and China will not devalue their currency in short term (meaning 6 months or may be longer). This will be hard for China, as well as Hong Kong, but China has gone through harder time than this in its modern history. And every time, it came out stronger than before. The reason for China to do so is not for their own interest, it is for the interest of the whole Southeastern and Eastern Asia. As a matter of fact, China might be better off to devalue its currency somewhat, but that will put too much pressure on other already very depressing Southeast Asian economy, and as well as South Korea economy. Of course, this remains to be seen.
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THE fall of Peregrine Investment Holdings, the largest Hong Kong-based investment bank and a major sponsor of mainland-linked shares, is unlikely to have major impact on mainland enterprises' moves to raise funds in the Hong Kong equity market, analysts said yesterday.
However, the underwriting market for mainland-linked stocks is expected to be dominated by foreign investment banks such as Merrill Lynch, Goldman Sachs, Credit Lyonnais Securities and JP Morgan. Peregrine had been a powerful rival for them.
"Such a situation will be harmful for mainland enterprises seeking listing in Hong Kong," a Beijing-based Peregrine official said. "There will be no Chinese-funded company to compete with them."
Peregrine acted as lead underwriter for more than 70 per cent of issuance of mainland-backed, Hong Kong-listed red chips and some 20 per cent of flotation of mainland-incorporated H shares. It had been involved in almost all the initial public offering of red chips and H shares, the Peregrine official said.
The red chips and H shares plunged yesterday on fears that the troubled company might dump its portfolio of red chips and H shares, brokers said.
"There are many professional investment banks which can sponsor listing of mainland-linked shares overseas," said He Ning, chief representative of Merrill Lynch in Beijing. "It is not that the mainland companies can not do without Peregrine. Competition will remain fierce in this market."
He admitted Peregrine had an advantage in having a deeper understanding of domestic companies and capital markets than most foreign investment banks.
Some mainland companies such as the Yanzhou Mining and China World Trade Centre, have delayed their Hong Kong listing ever since the market began to tumble in October last year.
The company fell into trouble last Friday after Zurich Group's Zurich Centre Investments Ltd pulled out of a deal to invest US$200 million into the company.
The stock and futures exchanges of Hong Kong have suspended Peregrine Brokerage Ltd's membership, and the Securities and Futures Commission issued restriction notices on certain members of the Peregrine group including both the securities and futures trading operation.
Peregrine said in October its equity products business had suffered a fall in net profits for the period January 1 to October 24, 1997, dropping to US$16 million from US$39 million at the end of the first six months of the year.
The Asian currency turmoil forced Peregrine to lay off 275 of its 2,000 staff worldwide in November.
It registered bigger losses recently with the depreciation of the Indonesian rupiah.
The company had hundreds of millions in US dollars invested in the bond market in Indonesia.
Analysts said an important problem for the company is that it did not pay enough attention to risk prevention in its aggressive development.
Hong Kong Financial Secretary Donald Tsang on Sunday sought to calm fears that Peregrine's troubles would crush the already battered stock market and urged investors to react rationally.
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Date: 01/13/98
Author: Liu Weiling
Copyrightc by China Daily |
