Creditor banks’ decision not to extend a syndicated loan to a real-estate subsidiary of Ting Hsin International Group (頂新國際集團) might force them to face default risks, but it might also adversely affect the food conglomerate, which is embroiled in a series of food safety scandals involving its food and cooking oil subsidiaries.
On Saturday, four banks led by state-run Mega International Commercial Bank (兆豐國際商銀) decided that Ting Lu Development Co (頂率開發) must repay a syndicated loan of NT$6.5 billion (US$204.7 million) in three days or face legal action, after the banks failed to reach a consensus on the loan rollover issue. The loan was granted for the Ting Hsin unit’s land development project in New Taipei City’s Sanchong District (三重).
The banks’ action has eased concerns that the government and creditors might back off from their previous anti-Ting Hsin positions, amid a public outcry over the tainted cooking oil issue. There were worries that the government and creditors might leave all the issues involving Ting Hsin off their agenda after the Nov. 29 elections.
The banks deliberated in closed-door meetings on whether to extend the repayment period or call in the loan. Their final decision to not allow a loan rollover did follow a consensus reached between the Ministry of Finance and state-run financial institutions in October to freeze credit, deny loan extensions, raise loan guarantees and hike interest rates on existing loans to Ting Hsin and its subsidiaries. The move also complied with suggestions by the Financial Supervisory Commission that financial institutions might adopt “equator principles” when reviewing loans made to projects associated with unethical businesses such as Ting Hsin.
However, in the midst of these positive developments, some discouraging things happened. First, Ting Hsin’s pledge to donate NT$3 billion for a food safety fund — an offer the group made when the extent of the cooking oil scandal became evident — remains elusive.
Second, the group’s intention to sell its 37.17 percent stake in Taipei Financial Center Corp (台北金融大樓公司) — the firm that operates Taipei 101 — to Malaysia’s IOI Properties Group Bhd, rather than to Taiwanese investors, dismayed most Taiwanese.
Third, the group has shown a reluctance to sell its shares in subsidiaries such as Wei Chuan Foods Corp (味全食品工業) and Taiwan Star Telecom Co (台灣之星) to repay some of the NT$48 billion in loans from local banks due by the end of this year, even though the debt is a small sum compared with the group’s massive investments in its Chinese businesses and the fact that the Wei (魏) brothers, Ting Hsin executives, ranked second-richest in the nation this year, with US$8.6 billion in net worth, according to Forbes magazine.
The banks’ decision to not extend credit to Ting Hsin might unleash a domino effect on loans made to other subsidiaries of the group, and potential defaults could cause trouble for the domestic banking sector, but it would be a wake-up call for Taiwanese businesses. That is because such defaults would introduce greater market discipline and advance the development of a corporate social responsibility-based economy, in which credit risk reflects the underlying impact of business operations on society and the environment.
A default by Ting Hsin, if it happens, would also signal the government’s higher tolerance for such risks as it pushes forward corporate governance reform. However, it could also mean that the government lacks real teeth to punish notorious businesses like Ting Hsin.
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