Fri, Nov 12, 1999 page17

• Twenty listed firms could face financial difficulties

  • By Stanley Chou / STAFF REPORTER
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  With the stock market dropping lately, several listed companies have recently started to have difficulties balancing their accounts.

  The Taipei Times has chosen 20 listed companies which could be the most risky investments for retail investors. All 20 have had problems both with share prices dropping and significantly high ratios of share collateral by company directors.

  Analysts said yesterday that these companies could go down anytime if the stock market does not recover in the near future, or if the economy worsens further.

  According to the Taiwan Stock Exchange, share prices of 170 of its 500 listed companies have dropped below their book value recently. The share prices of 63 of those 170 have fallen below 60 percent of their book value. The majority of the 63 are all in so-called traditional industries such as construction, food, and textiles.

  Statistics further show that the directors of nearly 100 listed companies have put up more than 50 percent of their holdings as collateral for loans from commercial banks and other financial institutions.

  The collateral ratios of 15 companies are more than 90 percent, while those for two companies -- Hung Fu Construction (宏福建3]) and China Manmade Fibers (??纖) -- have been as high as 100 percent.

  Analysts said normally the higher the collateral ratio the greater the risk to the listed company, since the directors have used most of their share holding as collateral to borrow money and to finance the company.

  When the ratio reaches as high as 80 or 90 percent, it means that the directors have already taken back most of their investment in the company. That makes such companies very risky to invest for other investors.

  For example, Hung Fu Construction has been in the midst of a bankruptcy crisis since last year, when the Hung Fu Group encountered financial difficulties. Hung Fu Construction has also been downgraded to fully-delivered shares (?thorn>額交3峈?, one step short of being delisted.

  Taiwan Pineapple (台鳳) and Crowell Development (皇普建3]), two companies that incurred financial problems recently, also fall into the high risk category because of their company directors' actions. Taiwan Pineapple's collateral ratio has been as high as 93 percent while Crowell Development has reached 74 percent.

  Analysts said a combination of the two situations detailed above is a dangerous sign for stock investors. When a listed company's directors have already collateralized most of their holdings to financial institutions, and the company's stock price keeps falling, this will force financial institutions to activate margin calls to the company's directors. Such a move could ignite a chain reaction among other creditors of the listed company.

  Many of the so-called "land mine stocks" (|a1p股) that went bust last year followed the above scenario.

  The 20 companies on the Taipei Times list all face the two situations described above. Their share prices have dropped to less than 60 percent of their book value as of Wednesday this week -- and the directors of all 20 have collateralized more than 50 percent of their holdings.

  The majority of the companies are in traditional industries. Eleven are in the construction industry, and three companies are in textiles. There is only one company in the electronics industry -- MAG Technology (美格科?THORN>) -- which has faced difficulties in running its computer monitor business recently, analysts said.

  Analysts said yesterday that if another listed company is going to run into major financial difficulties, it is highly possible that the firm would be one of those the Taipei Times list
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