23-12-2011, 10:36 PM
China Essence seems to have good connection. Er Kwong Wah (the same guy from China Sky Fibre) sits on the board and Cheah Cheng Hye from Value Partners is a substantial shareholder.
Quote:In good times, managers will tell credit officers to be aggressive and lend at low rates with lenient terms. In bad times, managers will give the opposite directive - no lending except at high rates and stringent terms, or sometimes no lending at all. Thus are we condemned to this collective insanity and the resulting boom-bust economic cycle. Only a bank that is micro-managed by its owner (like UOB) can hope to sidestep these issues. But there is a limit to how large such a bank can grow, and a limit to how long such an owner will live...
Quote:The DBS credit team forgot the first rule of lending: only lend to people who will pay you back...
It is sad that such elementary concepts seem to have been forgotten in the rush to "modernize" and "internationalize" the bank.
(24-12-2011, 11:53 AM)hyom Wrote: [ -> ]Just to lift the comments out of context for the sake of discussion. With the "modernization" of some banking practices, it actually make sense for bankers not only to forget the first rule of lending but to defy it. Debt securitization packages loans into different slices and bankers sell the different slices away. It can transfer bad lending risks to ignorant, greedy customers while bankers earn big fees in the process. Why should bankers care if the borrowers cannot pay back? Not my problem anymore. My interest lies in earning $$$ by transferring the problem away
(22-12-2011, 05:14 PM)d.o.g. Wrote: [ -> ]potatolover Wrote:Just for the record, Essence has made 3 payments to DBS for its original $60mil USD loan. $10mil, $10mil and $1.5mil (most recent).
But not quite sure why the credit team in DBS agreed to lend to Essence via a unsecured loan originally...
Yup, they did some good-faith partial repayments. They probably figured they might need to raise capital again in future, and paying something looks better than paying nothing. But ultimately, they paid because they WANTED to. DBS had no recourse if they didn't pay, and still has no recourse.
As to why the loan was made to begin with, remember that the loan officers are just employees trying to get a bonus. In a bank you get a bonus for making lots of loans and thus booking lots of interest income.
If the loan goes bad later, so what - you've already collected your bonus. Nobody has a long-term incentive to make sure the loan is good, especially when staff turnover is high. You'd probably be working in a different department or even a different bank by the time the problems crop up, so who cares about loan quality?
In good times, managers will tell credit officers to be aggressive and lend at low rates with lenient terms. In bad times, managers will give the opposite directive - no lending except at high rates and stringent terms, or sometimes no lending at all. Thus are we condemned to this collective insanity and the resulting boom-bust economic cycle. Only a bank that is micro-managed by its owner (like UOB) can hope to sidestep these issues. But there is a limit to how large such a bank can grow, and a limit to how long such an owner will live...
Qiaofeng Wrote:The achilles heel for most of the S-chips that got into trouble is CBs.
Negotiations failed becos:-
1) the bondholders did not budge (inexplicable in the light of d.o.g's explanation, since they will lose all)
OR
2) the majority SSHs did not wish to pay up ( they simply want to swallow up the "free" loan given the lack of punitive alternatives), given cross border issues wrt to legal jurisdictions.
Qiaofeng Wrote:The ability to protect minority shareholders interests by "freezing" foreign domiciled assets and to extradite and punish foreign domiclied majority SSHs seem to have been sacrificed in SGX's big rush to regionalise/internationalise.
Qiaofeng Wrote:For SGX to really compete with HKEX, more govt-to-govt level legal framework/structures to address cross border issues need to be set up.
(24-12-2011, 11:24 PM)d.o.g. Wrote: [ -> ]Qiaofeng Wrote:The achilles heel for most of the S-chips that got into trouble is CBs.
Negotiations failed becos:-
1) the bondholders did not budge (inexplicable in the light of d.o.g's explanation, since they will lose all)
OR
2) the majority SSHs did not wish to pay up ( they simply want to swallow up the "free" loan given the lack of punitive alternatives), given cross border issues wrt to legal jurisdictions.
Stupid bondholders are more common than you think. Many come from the US or Europe, and they think that just because the rules are in their favour, they can bang on the table and get their money back.
Crooked promoters are more common than you think. Many view the stock market as a place to get free money. As far as they are concerned, the company still belongs to them after listing - it just has more money now, and that extra money also belongs to them.
Qiaofeng Wrote:The ability to protect minority shareholders interests by "freezing" foreign domiciled assets and to extradite and punish foreign domiclied majority SSHs seem to have been sacrificed in SGX's big rush to regionalise/internationalise.
Freezing and seizing cannot be done for a few reasons:
1. Even if the promoters put their shares with a custodian in Singapore, they can just take cash out of the company. The shares would then be worthless.
2. Requiring the cash to be held in Singapore would create tremendous inconvenience for the business operations. Only if the customers and suppliers are all international could this even be feasible i.e. only transfer enough onshore to pay local wages, utility bills etc. For pure domestic operators who buy and sell locally in China, keeping the cash in Singapore makes no sense at all.
3. Extradition treaties, if they exist at all, normally cover only severe crimes e.g. drug trafficking, weapon smuggling, genocide etc. Stealing a few million dollars doesn't count. Marcos stole billions and didn't get extradited. Why would some small fry S-chip owner who stole "only" $50m get any attention? Even the boss of Oriental Century, after confessing to The Edge in an exclusive interview, is living as a free man in China. That should tell you everything about extradition.
Qiaofeng Wrote:For SGX to really compete with HKEX, more govt-to-govt level legal framework/structures to address cross border issues need to be set up.
Would China sign an agreement with Singapore that helps SGX to compete with HKEx? No way.
Quote:Qiaofeng Wrote:
The achilles heel for most of the S-chips that got into trouble is CBs.
Negotiations failed becos:-
1) the bondholders did not budge (inexplicable in the light of d.o.g's explanation, since they will lose all)
OR
2) the majority SSHs did not wish to pay up ( they simply want to swallow up the "free" loan given the lack of punitive alternatives), given cross border issues wrt to legal jurisdictions.
d.o.g wrote:
Stupid bondholders are more common than you think. Many come from the US or Europe, and they think that just because the rules are in their favour, they can bang on the table and get their money back.
Crooked promoters are more common than you think. Many view the stock market as a place to get free money. As far as they are concerned, the company still belongs to them after listing - it just has more money now, and that extra money also belongs to them.
Qiaofeng Wrote:So there is NO Way out of this conundrum?
Qiaofeng Wrote:Otherwise there would not have been a tacit agreement from Beijing; all these years, to let so many foreign domiciled Chinese owned companies to list in SGX.
Why close a good source of equity funding for China owned companies?
Qiaofeng Wrote:Why not help clean up all this mess on SGX and in the US exchanges that is giving China a bad name?
Quote:Yep, agree. Sounds like the sub-prime CDO problem. I think the reason banks are willing to take risks is because they either believe the risks are insignificant (i.e. borrowers will not default easily), or that they can transfer/diversify the risks away through the packaging you mentioned. I guess that's why there was a call to separate investment banking from traditional banking so that there would be no conflict of interest and that the corporate banking division would not be able to re-package loans to sell to their investment division.
Though I still believe this will NOT solve the problem as banks will somehow creatively find a way round this obstacle and somehow continue to try to re-package risk away, rather than engage in "true blue" prudent lending.
(25-12-2011, 08:31 PM)d.o.g. Wrote: [ -> ]Qiaofeng Wrote:So there is NO Way out of this conundrum?
Don't invest if you can't see a reason for the management to be honest.
Most of the time, with overseas companies listing in Singapore, the management has millions to gain from stealing the money and face no penalty even if they are found out. The logical outcome, therefore, is stealing.
Qiaofeng Wrote:Otherwise there would not have been a tacit agreement from Beijing; all these years, to let so many foreign domiciled Chinese owned companies to list in SGX.
Why close a good source of equity funding for China owned companies?
Chinese companies have been listing overseas for years, whether in the US, Singapore or elsewhere.
In case you haven't noticed, Chinese companies continue to be able to raise money. The investing world has China fever, it is not going to let a few scandals stop it from throwing money at Chinese companies.
Qiaofeng Wrote:Why not help clean up all this mess on SGX and in the US exchanges that is giving China a bad name?
China doesn't have a bad name. China is too important to the world for it to dare give China a bad name. The companies hit by scandal have a bad name, and that is waved away as the cost of getting in on the growth of China. These problems do not affect China's reputation at all. China has money now, and nobody badmouths the only guy in town with money. Especially not those who are broke or who depend on it to buy the stuff they make (see: US and Europe).