HK investors take fright as debt rumours hit market

Fears that a big property group might default on its debts triggered a 647-point fall in Hong Kong share prices yesterday, reports Stephen Vines. Meanwhile, the International Monetary Fund appears to have forced the Indonesian government into finally accepting the terms of its $43bn rescue package.

Rumour proved to be the most powerful force in the Hong Kong stock market yesterday as investors took fright from reports that the Sino Group, a major property developer controlled by the Ng family, would be forced to default on short term debts. The Hang Seng fell 7 per cent.

The rumours sent the shares of Sino Hotels down 51 per cent, with Sino Land plunging 45 per cent and its associated company, TST Properties, falling 34 per cent. Fears of default also helped fuel significant declines in the shares of HSBC Holdings, one of the two large Hong Kong banks who are lenders to the Sino Group.

"The directors wish to state categorically that there is absolutely no ground to such rumours ... the Sino Group is able to pay its loans as they become due and has sufficient working capital," the company said.

Those with long memories in the Hong Kong market recalled that the Ng family almost caused the collapse of the entire Hong Kong stock market in the wake of the 1987 crash when they were left holding massive uncovered futures positions which they were prepared to default on but were persuaded to settle in part following a government bail-out.

Ten years on, the Sino Group has bounced back and has gained a reputation as one of the most aggressive major-league property developers. It also has a reputation for high gearing. However, few analysts believe that the company would go so far as to default on its loans. Nikko Securities, in a commentary, described the situation at Sino as "tight" but believed that the company would deal with it by lowering prices for pre-sales of new projects.

Meanwhile in Indonesia, which has been casting a spell of gloom over the following last week's Alice in Wonderland budget, the government has been forced to concede to the conditions laid down by the IMF.

An agreement, signed yesterday by President Suharto and IMF managing director, Michel Camdessus, provides for: restructuring in the financial sector; and an end to special privileges for a number of monopolies and projects controlled by members of the Suharto clan. It will abolish a clutch of subsidies which have helped keep the poor off the breadline. However, vital controls on rice and fuel prices escaped the net because of real fears that this could provoke social unrest.

The initial response of investors was less than encouraging. The local currency lost another 12 per cent of its value and share prices dropped 4 per cent.