Pan-Electric troubles shock Singapore

Press, 5 December 1985, Page 64

Pan-Electric troubles shock Singapore

By Fl

FRANCIS DANIEL,

of Reuter (through NZPA)

Singapore Singapore’s carefully nurtured image as a world financial centre and confidence in its stock market have been hit by the island’s worst business crisis, the virtual collapse of a heavily indebted industrial group. The crisis has halted trading on the stock exchange in Singapore, and in neighbouring Malaysia, and dragged down prices in Hong Kong where Singapore investors have been selling heavily in a race to raise cash. Several stockbrokers and small firms in both Singapore and Malaysia face the prospect of going bust because of Pan-Electric Industries, Ltd, a shipping and property conglomerate with 68 subsidiaries in Singapore and abroad.

Pan-Electric was put into receivership on Saturday after banks and other creditors failed to agree on a financial package to rescue the company which has debts of SNZ34B million.

The affair sent shock waves through Singapore, already in the throes of a severe economic recession. But the Government’s economic strength and political stability will enable it to withstand the crisis. No Government Minister has commented on the current problems, but economists say the Singapore dollar is holding its own and they point to foreign exchange reserves of $NZ19.62 billion.

The Stock Exchange of Singapore (SES), working closely with the Monetary Authority of Singapore (MAS), has put together a rescue plan for brokers caught in Pan-Electric’s troubles.

Industry sources say the plan calls for four banks to lend brokers SNZI2I.7M to keep them afloat. The exchange will guarantee the loan and its disbursement while each of its 25 members will accept liability for SNZ4.BM. . The SES has said it would

soon also announce a new scheme to strengthen the securities industry. Industry sources said the scheme could involve tightening of credit lines and closer supervision of share trading. But the MAS and the SES have been silent over growing public demands to bail out Pan-Electric, which still hopes to restructure itself and discharge the receiver without going into liquidation. “Pan-Electric is inextricably tied in with a whole lot of problems affecting the securities industry and banking. Its effect will be felt on the whole economy,” a senior investment analyst told Reuters. Pan-Electric’s problems include commitments by some of its subsidiaries to buy shares in other firms for S2O4M, brokers said. They estimated that total forward share deals in the market could be as much as $1.68 while paid-up capital of all broking houses here is less than $405.6M. Analysts said the island’s reputation as a financial centre would suffer irreparable damage whatever the outcome of the Pan-Electric episode. The “Straits Times” newspaper said it was receiving angry calls from local investors and foreign businessmen demanding swift Government action to settle the affair. Some complained that the exchange had remained silent too long and did not act fast enough after trading in Pan-Electric and two related companies was suspended two weeks ago. “Singapore exists only because of the confidence in your Government and it should not allow this to be undermined. This will defin-

itely happen if your Government is not going to act fast,” the newspaper quoted an unidentified executive of a foreign electronics firm as saying. Commenting on the halt in stock trading, the financial daily, “Business Times,” said: “The suspension exercise may well have stopped a rash of selling for a time. “The pity is that it will have forced the potential buyers to look elsewhere. It may be a long time until they look again at Singapore.”

Brokers said almost all their clients wanted to get rid of their stocks and they predicted that prices would plunge when the exchanges reopen.

Bankers said the impact of the Pan-Electric crisis was felt by all banks in Singapore.

“The situation is much more serious than everyone expected. Banks will now have to review their credit lines and be more cautious in their future lendings,” an executive of a major Japanese bank said.

The crisis hit Singapore as the Government, which reported 80,000 people lost their jobs in the first nine months of the year, painted a bleak outlook for the economy. It expects a 2 per cent decline this yearagainst 8.2 per cent growth in 1984.

Business leaders say part of the economy’s problems have been caused by Singapore’s efforts to move too fast and too soon, leading to steep increases in wages and other costs. These are blamed for making Singapore less competitive than rivals like Hong Kong, Taiwan, and South Korea.