Financial Crisis in Singapore Grows Worse : Economic Fallout From Market Crash Continues
Two companies have collapsed so far and the arrests have started in the wake of Singapore’s “Black Thursday” stock market crash.
The economic fallout and political repercussions are expected to last for months as authorities try to untangle a complex maze of transactions involving banks, stock exchanges, brokerages and speculators in the shares of listed companies in this island state, one of Asia’s leading financial centers, and in neighboring Malaysia.
Hopes for an orderly solution to the financial crisis ended in late January with the arrest in Singapore of Malaysian financier-politician Tan Koon Swan and the abandonment of efforts to rescue the Pan-Electric Industries Ltd. conglomerate.
Tan, 45, was charged in district court with six counts of abetting criminal breach of trust designed to “dishonestly dispose” of the equivalent of $2.6 million worth of assets in the Pan-Electric group.
Pan-Electric is involved in marine salvage, real estate, hotels and manufacturing. It has more than 5,000 stockholders and 1,500 employees in 68 subsidiaries and affiliates in Singapore, Malaysia, Hong Kong, Brunei and the United States.
A steering committee representing Pan-Electric’s 38 creditor banks disbanded in late January after agreeing to an “orderly disposal” of the company’s assets.
Two New Panels
It was replaced by two new committees of banker-creditors, one to try to keep the Selco salvage unit afloat as a going concern until a buyer can be found, the other to sell off other divisions.
Selco describes itself as the world’s second-largest marine salvage operation. Selco’s profits are erratic, however, since they depend on unpredictable events like ships being wrecked by accident, or fighting between Iran and Iraq.
The Netherlands-based Smit Tak International BV, the marine salvage industry leader, and the Singapore government-controlled Sembawang Shipyard Ltd. have been mentioned in published reports as possible buyers of Selco.
One foreign banker who served on the steering committee, and who spoke on condition that he remain unidentified, said any hope of reviving Pan-Electric ended when the Singapore government declined to guarantee new financing.
Brokers say the uninhibited use of “forward contracts” led to Pan-Electric’s downfall.
These now-outlawed agreements to buy or sell shares at predetermined prices three to six months in the future often were used as collateral to raise cash. Hundreds of millions of dollars worth of forward contracts that contributed to the financial squeeze still threaten the market’s stability, brokers say.
Extensive financing on margin of stock purchases by brokers buying both for their own and the accounts of their clients helped maintain share prices at inflated levels until October.
Became Nervous
The market became nervous and began drifting lower after Pan-Electric shares were suspended from trading on Nov. 19. It was ordered into receivership by a court on Nov. 30 after the collapse of negotiations aimed at restructuring nearly $199.7 million in bank debt.
The steering committee blamed the breakdown of talks partly on Tan Koon Swan, widely recognized as the most politically powerful and economically influential Chinese in Malaysia.
