Impact Of The Collapse Of Pan Electric Industries Finance Essay

trespass Of The Collapse Of pan out galvanic Industries Finance Essay pan-Electric Industries was a capital of capital of capital of Singapore-based company that specialized in oceanic bring through work and had 71 subsidiary companies, it including hotel and property interests with a grocery store capitalization of S$230 cardinal (Wikipedia). The of import worry of scrap-Electric Industries was the manufacture of refrigerators.In March 1985, Pan-Electric Industries Ltd had joined erythema sol are Koon throw aways business kingdom. Pan-Electric defaulted on S$7.5 one thousand one thousand million installment for S$75 million syndicated loan by Standard Chartered Bank. It excessively voluntarily requested ances taste shift Singapore and Kuala Lumpur crease Exchange to suspend its piece of grounds on 18 November 1985. The reason given is need to revise right spot and restructure financing. Besides, twain a nonher(prenominal)wise tan Koon Swan related companies , Sigma and Growth Industries Holdings oerly request and are granted suspension. Consequently, when it announced a rights issue for S$80 million meant to generate more than liquidity, it causes the underwriters to look more closely at Pan-Electric Industries pecuniarys and financial fundamentals. It also discovered that the company was S$453 million in debt from 35 banks, which at that place is S$283 million is unsecured. The rights issue was then cancel guide and a rescue externalise to improve Pan-Electrics position proposed.On the other hand, the loan package for Pan-Electric Industries is unveiled gain the financial assistance from the banks. There are 2 shipway that the company get loan (1) to be raised S$200 million through the faithfulness and right issues from other investors of the company. (2) Get the interest-free loan of S$40 million from tan Koon Swan. When the rescue syllabus falls through, bronze Koon Swan refuses to pump in the S$40 million unless the r e supportment precedence is raised. However, the creditors are refused to do that. Besides, the legal impediment arises. That money from convert Koon Swan brings from Sigma, which owns more than 20 persona of Pan-Electric and is therefore not allowed to lend it money under the Companies Act. out-of-pocket to these reasons, Pan-Electric Industries was semiofficially insolvent and was consequently pose in receivership. This was the trigger that started the domino force out of defaults on forwards contracts.In the end, the company applyd overdue to changeable forward contracts, and forcing the extend commutings of both Singapore and Malaysia to shut down for ternary old age during the course of instruction of 1985. The prostration of Pan-Electric succeeding(a)(a) its huge debts and incapability to make good on forward contracts precipitated a systemic crisis that imperil the entire then-nascent contrast broking manufacturing. At its demise, the company had a t ote up debt of S$480 million, and all its shares held by 5,500 shareholders were represent to be worthless overnight.After that, all the receivers were appointed, and the significant decision was to suspend all art on ancestry Exchange Singapore to forestall panic dumping which scuppered to wipe hundreds of millions off the exchange. erythema solare Koon Swans case was the first ever case of stock manipulation in Singapore which went to the extent of end down the Stock Exchange Singapore for iii days. Because of that, it is representative of the trend of the white-collar crimes becoming little by little more sophisticated and impressive. In the end only one count was proceeded upon against convert Koon Swan is that abetting Pan-Electrics pay director, burn mark Kok Liang, to commit that the evil breach of believe of about S$145,000 (which belonged to Pan-El) for which tan Koon Swan was incarcerate two stratums and fined S$500,000. The amount embezzled was applied to pay the interest on three million of Grand United Holding (GUH) shares bought by a Pan-Electric subsidiary, Orchard Hotel. The Orchard Hotel purchase the shares were in turn a part of the scheme by burning Koon Swan to artificially boost the GUH share price. However, Tan Koon Swan was spared any market manipulation charges.As a result of the collapse for Pan-Electric Industries Ltd in celestial latitude 1985, the key people in the company such as Peter Tham, Tan Kok Liang, and Tan Koon Swan were prosecuted and given varying jail sentences. The collapse of the company shook universal confidence in the Stock Exchange Singapore, causing prices of stocks to plunge.-Stock Exchange Singapore had closed trading for three days.The collapse of Pan-Electric Industries Ltd, though incorporated in Singapore, led to the unprecedented closure of both the Singapore Stock Exchanges in celestial latitude 1985 for three days from 2 December until 4 December. This is due to the failure of a large pu blic company, Pan-Electric Industries Ltd. Since that, the prices of property fell by over 30 share. The combination of tight liquidity, low inflation and a slap-up dec run in share and property prices exposed to the financial over-commitments of many entrepreneurs.Moreover, the court issues an society that Pan-Electric Industries has been put into liquidation and accounting firm believed that it had also been dismissed as the conglomerates provisional liquidators. The Pan-Electric along with its 71 subsidiaries had owes about US$168 million to more than 30 banks. Besides, Pan-Electric subsidiaries that cannot be sold as going concerns volition be liqui go out later still the larger properties, such as the Orchard Hotel in Singapore, and Selco Marine, a salvage operation, had attracted some potential buyers. Creditor banks susp finish negotiation to rescue Pan-Electric soon after Tan Koon Swan, a study Pan-Electric shareholder, also a Malaysian businessman and political scienc eal leader was arrested as a result of political sympathies investigations into the financial dealings of Pan-Electric. In December 1985, when Pan-Electric went into receivership after failing to meet US$187 million in debt payments, the Singapore and Kuala Lumpur stock exchanges were forced to close for three days.It was a series of inter-linkages which dragged six brokerages to the demise unitedly with Pan-Electric and caused a crisis of confidence that caused the stocks markets to plunge when the Singapore Stocks Exchange re-opened in December 1985 after 3 days of closure. In the local context, it is a day that known as Black Thursday. In addition, it created a operation for stricter regulation of the Singapore Stocks Exchange by Mo benefitary Authority of Singapore. After that, the market had transformed from a self-regulated entity to a tightly-regulated one, in particular with regard to brokerage capital requirements, gearing and margin limits, as healthful as reserve fund requirements. Because of that, this has since loosened to a disclosure-based regime, where the obligation is on the individual investor to exercise caution emptor.During the closure of the stock exchange, the Association of Banks and the Stock Exchange of Singapore held some emergency meetings as the use cast further gloom on the prudence, they already forecast to shrink by 2 pct during that year. Besides, there are many comments about the effect of the market to the public and the actions will take by the government. The Singapore Stock Exchange Chairman Ong Tjin An declared that the decision was taken to cool off the market and the public to permit the peeleds of the receivers cosmos appointed at Pan-Electric Industries. There are no elaborate were immediately available, however, some stockbrokers thought that the stock exchange was running out a impertinently plan to strengthen the deficiently shaken local securities industries while banks sought to minimize losses and t ighten the credit lines. Furthermore, the financial daily Business Times said that no matter what is the next incident in the Pan-Electric crisis brings, Singapores reputation as a financial capital had suffered as a consequence of this debacle, the gravest in the republics financial history. However, the Stock Exchange of Singapore and the Kuala Lumpur Stock Exchange did not indicate when they would allow trading to re spirite, but stockbrokers evaluate the suspension fairish will last up to a week. Yet, a senior bank official said Once you close, there is never a good time to open. Share prices are in spades going to slide. A prolonged closure will worsen market sentiment. In other way, those stockbrokers broadly speaking welcomed the suspension in both exchanges, which they believed pr plainted panic loting and a possible collapse of the stock market. The Stock Exchange of Singapore and the Kuala Lumpur Stock Exchange work closely because most of the shares are quoted on bot h exchanges.When the trading was resumed on 5 December 1985, all the share deals had to be conducted on an immediate pitch shot basis. This meaning that all the payment had to be made within 24 hours of a trade. Trading on a settlement basis (payment within a month) was hang up indefinitely, while forward trading (payment more than a month later) was completely banned. This settlement period was subsequently changed to T+5 on 6 January 1986, after some overseas clients complained about difficulties in fulfilling the 24-hour delivery rule. At the moment, the settlement cycle is on a T+3 days basis, where all share deals imbibe to be settled three days after the transaction has been entered into. As a result of the shorter settlement timeframe, there is less uncertainty.-Economy of Singapore. The stock market prices of Singapore to plunge.Furthermore, the economy of Singapore seriously gets mould by the Pan-Electric collapse during the year 1985. This is because Singapore was the third most important financial centre in the Asia after Tokyo and Hong Kong by the mid-1980s. In the financial sector, Singapore have sustained double digit growth over the past a couple of(prenominal) decades, accounted for some 23 percent of Gross Domestic Product (GDP) and employed about 9 percent of the labor force. However, the growth in the financial sector slowed to just 2.6 percent and Singapore Stock Exchange had suffered a Pan-Electric crisis which forced to close for three days in the December. Due to the major crisis in the year 1985, this had troubled domestic economy and there are some people worried that Singapores future as a financial centre looked a bit problematic. Besides, the market underwent a major, prolonged reorganization following the collapse of a Singaporean company, Pan Electric Industries which revealed a massive web of forward share dealings based on borrowed money. The collapse resulted in a tighter regulation of the financial futures market and the securities industry.In addition, the Singapore Stock Exchange Chairman Ong Tjin An said to cool off the market and for the public to digest the modernistics that Pan-Electric Industries had fallen into receivership. The S$230 million Singapore-based conglomerate had collapsed because a complex web of forward contracts involving its shares could not be unwound. The Pan-Electric debacle hurt Singapores reputation as a financial centre. When the Pan-El crisis hit, the Straits Times power (STI) was already deep in a downward spiral of a bear market that dated back more than two years to May 1983. Because of that, there are a few companies have collapsed and the arrests have started in the wake of the Singapores Black Thursday stock market crash. The economic fallout and political repercussions are expected to last for months as authorities try to untangle a complex snarl of transactions that involving banks, stock exchanges, brokerages and speculators in the shares of listed companie s in this island state, one of Asias leading financial centers and in neighboring Malaysia. Everyone was hopes for an orderly solution to the financial crisis ended in the late January with the arrest in Singapore of Malaysian financier-politician Tan Koon Swan and the abandonment of efforts to rescue the Pan-Electric Industries Ltd conglomerate.On the other hand, it was counterchanged by two new committees of the banker-creditors. The purpose to replace the two new panels is that one of the banker-creditor is try to keep the Selco salvage unit afloat as a going concern until a buyer can be found, the other to sell off other divisions. Selco describes itself as the worlds second-largest marine salvage operation and the profits are erratic. However, since they depend on unpredictable events similar ships being wrecked by accident, or fighting between Iran and Iraq. The Netherlands-based Smit Tak International BV, the marine salvage industry leader, and the Singapore government-con trolled Sembawang Shipyard Ltd have been mentioned in published circulates as possible buyers of Selco. One foreign banker who served on the direct committee, and who spoke on condition that he remain unidentified, said any hope of reviving Pan-Electric ended when the Singapore government declined to guarantee new financing. Some brokers say the uninhibited use of forward contracts led to Pan-Electrics downfall. These now-outlawed agreements to buy or sell shares at predetermined prices three to six months in the future a great deal were used as collateral to raise cash. Hundreds of millions of dollars worth of forward contracts that contributed to the financial squeeze still threaten the markets stability, brokers say. Extensive financing on margin of stock purchases by brokers buying both for their own and the accounts of their clients helped discover share prices at inflated levels until October.The market became nervous and began drifting lower after Pan-Electric shares were suspended from trading on November 19. It was ordered into receivership by a court on November 30 after the collapse of negotiations aimed at restructuring to the highest degree US$199.7 million in bank debt. The steering committee blamed the breakdown of talks partly on Tan Koon Swan, widely recognized as the most politically powerful and economically influential Chinese in Malaysia.It is quite important to bring out the impact that the Pan-Electric collapse had on the financial system which caused the Singapore Stock Exchange to take such a drastic step as to suspend all stock trading for three days. The forward contracts that Pan-Electric Industries entered into implicated a whole food-chain of banks and brokers. On the other way, an Monetary Authorities of Singapore paper summarised that With forward trading, a whole chain of parties is linked via promises of sale and purchase to the same lot of stock, the line only ending with a purchaser which all wants to keep the stock, or that cannot find someone else to sell it to. If this last purchaser is unable to meet its obligations to pay for the stock when they fall due, a domino effect is created and defaults could occur down the chain.-Investors and stock broking firms. Many investors could not get back their principal money. On the same time, the stock broking firms had make losses.The Pan-Electric crisis can be confounded down into two parts. First, there was a systemic threat to the survival of the whole stockbroking industry as the forward contracts the stockbroking firms were involved in came due without buyers, they were forced to settle these purchases, which in some cases amounted to the entire capitalisation of the company many times over. Second, there was a widespread loss of public confidence that followed the collapse of Pan-Electric and the financial troubles of many of the stockbroking firms this evinced itself in plummeting prices on the Stock Exchange of Singapore.This was what happene d during the Pan-Electric, given that the massive amount of forward contracts it had entered into, when Pan-Electric was unable to find a seller for these stocks, its liquidity position, already unstable, was plunged into insolvency. This in turn affected the many companies who had contracted to sell shares to Pan-Electric and who now had no buyer for these shares. In addition, stockbroking firms, which had acted as financiers in putting up the margins for forward contracts while the latter were in the process of being re-sold, found that their financial commitments far outweighed their net worth when the pool of buyers dried up.Brokers and bankers in both countries said a number of smaller companies caught in Pan-Electrics stock swap deals, might be forced to close if the banks do not bail them out. Pan-Electrics problems include forward purchases of stocks for US$64 million by some of its subsidiaries. The Singapore Stock Exchange is suspended trading in Pan-Electric and two of i ts related companies on November 19, and the stock index has since fallen by nearly 70 points to 691.81. The temporary closure does not mean the end of buying and selling. Traders can still come together in the gray market, which will be unsupervised. Besides, concern over Pan-Electrics problems spilled into Hong Kong, where stock prices fell crisply during that time, with the market index dropping 22 points to 1,694.57. Some stockbrokers said the prices were forced lower as Singapore interests sold shares in Hong Kong to raise cash. There is one European broker in Hong Kong said that the move back was widespread as local and foreign (investment) institutions joined the Singaporeans in selling today. In addition, a Singapore broker said that the whole affair has left us numb and almost every investor just wants to get out of the market. different than that, these investors in the stock would have their individual hard-luck stories, all 5,500 of them who ended up with nothing, but the biggest loser in the fiasco was the man at the centre of the storm Tan Koon Swan, a substantial shareholder of the company holding an indirect 30 percent stake, and the most well-known Chinese politician in Malaysia, as newly-elected President of the Malaysian Chinese Association (MCA). Exercising tremendous go over Pan-Electrics directors in the entering into of forward contracts that were to bring the company to dire straits in 1985, he was later found guilty off and jailed for attempting illegal funds transfers from various sources, including from Multi-Purpose Holdings, the commercial lace of the MCA, during the Pan-Electric crisis period in 1985 in his vain attempt to raise capital to rescue the company from insolvency. A witch-hunt always follows a debacle, that much is certain and in this case it brought an end to both Tan Koon Swans business and political careers.Most analysts agree that the system of forward contracts, in which shares are re-sold before their purchase has been settled, was the crux of the Pan-Electric crisis. With forward trading, a whole chain of parties is linked via promises of sale and purchase to the same lot of stock, the line only ending with a purchaser which either wants to keep the stock, or that cannot find someone else to sell it to. If this last purchaser is unable to meet its obligations to pay for the stock when they fall due, a domino effect is created and defaults could occur down the chain.Impact in Malaysia Kuala Lumpur Stock Exchange had s earnped trading for three days.Due to the Pan-Electric crisis, the Kuala Lumpur Stock Exchange actually closed for a few days in the December 1985. The main reason is the failure of the large public company Pan-Electric Industries Limited. This crisis had brought a big crash on the economy of Malaysia. The property prices fell by over 30 percent. The combination of tight liquidity, low inflation, and a sharp decline in share and property prices exposed the financial over-c ommitments of many entrepreneurs.In addition, with the three-day suspension of the Kuala Lumpur Stock Exchange, and the subsequent collapse of the share prices where $10.8 million shares value was wiped out on the resumption of trading because of Tan Koon Swans Pan Electric crisis scandalization. Malaysian attention had been distracted from a radical departure from NACSE Endorsed Provider (NEP) guidelines. This is the government decision recently too arbitrarily, without nation or consultation, to raise the bumiputra quota for new shares issue from 30% to as high as over 70%.On the other way, there is a latest report from Singapore that four more Pan Electric Industries subsidiaries have been placed in the hands of receivers and managers highlight the gravity and complexity of the Pan Electric crisis, which had cause the three-day suspension of the Kuala Lumpur and Singapore stock exchanges, and wiping out $10.8 billion of the total shares value in Malaysia on the day Kuala Lumpu r Stock Exchange resumed trading. Political of Malaysia had been affected because chairman of Malaysia Chinese Association (MCA) involved in the crisis.During the year of 1985, Malaysia government plan to hold a general elections in end February or early March at that year, but it was sabotaged by the following scandal of the arrest in Singapore of Malaysia Chinese Association (MCA) President, Tan Koon Swan, on 15 charges on criminal breach of send, cheating and fraud in connection with the Pan-Electric crisis, which closed down the stock market of two countries for three days and wiping out S$10.8 billion from the Kuala Lumpur Stock Exchange.However, after a month of the Tan Koon Swan MCA leadership, it is clear that the MCA had never had such weak and unsuccessful new leadership in the MCA political party history. MCA can never hope to have any effective voice in the government as long as the MCA leadership and in particular Tan Koon Swan is bogged down by the Pan Electric cris is. The Pan Electric scandal also has weakened the hand of MCA leadership that it dare not put pressure on the UMNO leadership on any issue, for it had to depend in the final analysis on the government to help bail out Tan Koon Swan, whether directly or indirectly by giving government blessings and encouragement to UNICO to salvage Tan Koon Swan. Furthermore, the Pan-Electric crisis not only weakens the MCA leadership but also the politic of Malaysia.The new MCA President, Tan Koon Swan has failed the Malaysian Chinese community for up till now, they have refused to let the people know the full story of the Pan Electric crisis. No wonder, the MCA leaders are unable to press for the publication of the Ahmad Nordin Inquiry Committee final report into the $2.5 billion BMF loans scandal in Hong Kong. The new MCA leadership should hold an emergency meeting to discuss the Pan Electric crisis, and how the MCA has been made more ineffective and impotent by Tan Koon Swans personal involveme nt in the Pan Electric crisis. Instead, the new MCA leaders seem to be more interested with building up their new political empires. Besides, the new MCA leaders are spending a lot of time and money renovating the MCA Headquarters, where every floor that is employed by the MCA is being renovated, and the express could be as high as a million dollars.Other than that, if the MCA leaders, branches and members could not differentiate between charges involving corporate crimes, leading to a crisis which resulted in the three-day suspension of the Kuala Lumpur and Singapore stock exchanges and billions of dollars of shares losses by the invertors and politics, then it is a sad indication on the level, quality and loseard of the new MCA. The MCA leaders, branches and members had been organising demonstrations throughout the country, stop the Singapore cars at the Johor causeway, threatening the economic boycott of Singapore goods and services and even threatening to out the water supply from Johor to Singapore. However, by making all these empty threats, those people are doing more harm than good. As they follow the MCA leaders, branches and members in such wild threats. It has also not flee the attention of the Malaysian Chinese that on vital issues affecting the fundamental political, economic, educational, cultural, and religious rights of the people and future generations, the MCA leaders, branches and members are incapable of any demonstrations.At the same time, Tan Koon Swan had explain that the conflict with his accounting last December on his rescue of Pan Electric Industries. The $23 million controversial sum of Multi-Purpose is becoming more and more out of the ordinary. The explanation by Tan Koon Swan about the dowery of the loss of the $23 million by mph last November, conflict with his explanation last December on his attempts to save Pan Electric. Tan Koon Swan said yesterday that on 21st of November 1985, the miles per hour Board passed a resolu tion authorizing to the company to make a $23 million investment in Pan Electric. This is to relieve the miles per hour of its shipping company which was facing grave losses and authorized the cheerfulness to be disbursed on Tan Koon Swans instructions. notwithstanding on 3rd December 1985, after the collapse of Pan Electric and the three-day closure of the stock exchanges of Malaysia and Singapore, Tan Koon Swan mid that he had been having sleepless nights for the past two weeks trying to come out with a financial package to help save Pan Electrics problems. This means that when the MPH Board met on 21st November 1985, Tan Koon Swan was already unable to sleep over Pan Electrics problems. Clearly, he could still sleep over MPHs problems. But how, we are to believe that even at that date, Tan Koon Swan was trying to save MPH from its shipping losses, rather than save Pan Electric. Pan Electric shareholders have expressed out their great shock at the latest revelations, for this wa s in total conflict with the picture that Tan Koon Swan had presented later, but Tan Koon Swan went to the rescue of Pan Electric without any personal interest. What is involved here is not just what exactly transpired in last November, as to whether Tan Koon Swan was trying to save Pan Electric or Multi-Purpose or merely himself, but the question of the credibility of the President, of MCA, which claims to represent five million Malaysian Chinese.The MCA central Executive Committee to in public declare their agreement that a public inquiry be recognized into this matter, to determine the exact dowry leading to the pay-out of $23 million of MPH funds into Pan Electirc, it resulting in a total loss. Tan Koon Swan should bear the full $23 million although he had explained that this decision was taken by the MPH with full knowledge of the circumstances of Pan Electric, then it is most unreasonable whether legally or morally. This should be the moral responsibility of every MPH to sha re in its losses, including the MPH chairman, Datuk Lee San Choon, and the MCA youth drawing card and Deputy Minister of Trade and Industry, Kee Yong Wee, who was also a MPH Board Member for the full year in 1985. If the MPH Board are so heartless as to make Tan Koon Swan to bear responsibility for the $23 million, when it is public knowledge that Tan Koon Swan is hard-pressed for money and the MPH Board Members owe the people an explanation for their merciless conduct. After that, the press have reported that the correspondence of $5 million had not been paid, as the cheque was not presented for payment. At the end, Tan Koon Swan was answerable for tens of thousands of people using their hard-earned savings to buy MPH shares and were also prevailed not to sell by Tan Koon Swan who phoned up from London- or they would not have to face so great a disconnected where MPH shares is struggling between 35 to 40 cents a share.Not only that, there could be no heated discussion that Tan K oon Swans voice in the highest Barisan Nasional council is so weak that he had to try to rally Gerakan support, although it was none other than Gerakan President, Dr. Lim Keng Yaik, who predicted early of the month that the MCA would disintegrate into another major party affray within 30 days-showing utter lack of confidence and contempt in Tan Koon Swans leadership. After Keng Yaiks prideful statement, Lee San Chooh or even Neo Yee Pan would have pleaded for Gerakan support like Tan Koon Swan. UMNO leaders will never allow Tan Koon Swan to forget that if not for their intervention in the 22-month MCA crisis, Tan Koon Swan would have no chance in being elected as MCA President on November of 24.There is now circulating in the country the talk that over the Pan Electric affair, a top government and UMNO leader had intervened with the Singapore authorities on behalf of Tan Koon Swan. If this is true, then Tan Koon Swans voice and influence in the highest Barisan Nasional councils is even less than before. Malaysia Chinese Association (MCA). The Chairman of MCA Mr. Tan Koon Swan had been jailed due to this crisis.During the Pan-Electric crisis, Tan Koon Swan was charged in the district court with six counts of abetting criminal breach of trust that designed to dishonestly dispose of the equivalent of S$2.6 million worth of assets in the Pan-Electric group. Pan-Electric is involved in marine salvage, real estate, hotels and manufacturing. It has more or less 5,500 stockholders and 1,500 employees in 68 subsidiaries and affiliates in Singapore, Malaysia, Hong Kong, Brunei and the United States. A steering committee representing Pan-Electrics 38 creditor banks disbanded in the late January of 1986 after agreeing to orderly disposal of the companys assets.Later on, Tan Koon Swan has been arraigned with another nine new charges, bringing to a total fifteen charges which he had to stand trial in Singapore in connection with the Pan Electric crisis, covering the breac h of trust offences, fraud and cheating. Tan Koon Swan was required to hand over another S$20 million for the additional charges, breaking his own world record when he had to post S$20 million for the first six charges-bringing a total of S$40 million bail. On 23rd of January 1986, As mention that Tan Koon Swan was charged with six counts of criminal breach of trust offences amounting to S$5.6 million, there was surprise and shock that such a sum of S$20 million bail was required. Similarly, a total of fifteen charges involving more than S$29 million were read out against Tan Koon Swan, there was also surprise and shock a total bail of S$40 million was required. But what is even more surprising and shocking is why Tan Koon Swans lawyers had not raised any expostulation to the gigantic bail in both instances, whether the initial S$20 million bail was imposed, or yesterday, when a total of S$40 million bail was called for.At the end, Tan Koon Swan is being jailed for two years and fi ned S$500,000 due to the Pan-Electric crisis that had a huge impact to the stock exchange of the two countries which are Singapore and Malaysia.