Tue, Jan 09, 2007 - Page 8 News List

Editorial: The China Rebar case is an omen

To prevent a further dip in confidence in the nation's financial system following the recent run on The Chinese Bank (中華銀行), Premier Su Tseng-chang (蘇貞昌) and financial officials once again publicly said that there is no need to panic and that the government has taken over the bank and will guarantee customers' deposits.

The government's action has reduced the likelihood that the financial crisis will expand and negatively affect the economy. The other good news is that The Chinese Bank isn't big enough to have much of an impact on the financial system.

Nevertheless, for prospective customers, the incident offers a warning on the importance of carefully choosing a reputable bank.

The Chinese Bank's shares have become "full-cash delivery stocks" (全額交割股), meaning that investors who purchased the bank's shares in hopes of a foreign buyout can't cut their losses and get out.

For investors, the bankruptcy should serve as a warning to prospective investors to be on the lookout for dishonest shareholders and poor company management.

With customers' deposit accounts secure, the real difficulty lies in the billions of dollars owed by the Rebar Asia Pacific Group's (力霸亞太企業集團) debt-ridden banks and distributors.

The Ministry of Economic Affairs must provide guidance on China Rebar (中國力霸) and Chia Hsin Food & Synthetic Fiber Co's (嘉新食品化纖) request for insolvency to the Taipei District Court. But with creditor banks expressing their opposition to the request, judges will face a difficult decision.

If the courts were to decline the application and creditors didn't show leniency, the two companies could collapse.

The victims would not only be the banks that have made loans to China Rebar's companies and the suppliers who wouldn't get paid, but also the multitude of workers who would face unemployment.

However, if the courts allowed the companies to restructure, or creditors were required to accept repayment over an extended period, the result could be even worse.

As the drama unfolds, it has become apparent that large financial conglomerates like Rebar have muddled the relationship between government and industry. As their individual companies absorb serious losses, the conglomerates take on even greater debt. In the face of increasing debt, government supervisory offices become loath to act and the ticking time bomb threatens to explode.

Rebar's financial troubles have highlighted potential problems at the heart of some of the nation's family-run financial groups. Sometimes their owners treat these banks like private cash reserves, selling off or concealing their assets, then leaving their debts behind.

Media reports suggest that although China Rebar is bankrupt, Rebar Group chairman Wang You-theng (王又曾) is believed to have invested in Chinese hotels and golf resorts and pampered himself in presidential suites while he was in China.

Wang's willingness to spend money in China while his Taiwanese companies were saddled with debt deserves the harshest condemnation.

Many people suspect that through complex stock investments and asset transfers, Rebar has given its most promising enterprises and assets to the second generation of major family shareholders. Investigators and top financial officials must conduct a thorough investigation into this matter.

If the Wangs are attempting to use client investments to profit family members, those responsible must be brought to book.

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