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11/09/01

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The Peregrine Debacle 1

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In January 1998, Peregrine Investments Holdings Limited, once billed as "Asia's only
indigenous investment bank", was forced into liquidation after the revelation of huge losses in
its fixed-income business and the withdrawal of potential investors from Europe and the
United States. Peregrine became the highest profile corporate failure in the Asian financial
crisis to date. A firm that seemed to be on the top of its world in early 1997 had collapsed
under a pile of bad debts less than a year later. Peregrine's demise raised questions about how
the firm might have avoided the debacle.

Investment Banking

yo 2

Investment banks were financial institutions that served as underwriters or agents for
corporations or governments issuing securities. Investment banks were distinguished from
commercial banks or retail banks in that they did not take deposits or make loans. Most
investment banks provided a range of services, including underwriting, broker/dealer
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operations, maintaining markets for previously issued securities, advisory services for
companies, and research and advisory services for customers.

Investment bankers prepared initial public offerings (IPOs) and bond issues for companies
that wanted to raise capital. They served their clients through all the procedures from
planning the deals up to distribution of issues in the market. Apart from bonds and equities,
investment banks could also arrange syndicated loans, swap transactions, and equity-linked
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issues such as convertible floating rate notes and equity-warrant bonds. Investment banks
often were paid a fixed fee plus a commission that was typically a percentage of the value of a
particular transaction. Key success factors for investment banks included their placing power
(ability to sell new issues to investors), reputation, capital base, ability to make markets in
issued securities, and research support.

In 1997, worldwide bond issues amounted to more than US$872 billion, equities issues were
No

worth up to US$114 billion [see Exhibit 1], and equity-linked issues were worth more than
US$36 billion. The total amount of syndicated credits arranged by investment banks was
about US$1.49 trillion. Some of the leading international investment banks in dealing bonds

1
This case is largely based on a report on the liquidation of Peregrine commissioned by the Hong Kong Special Administrative
Region's Financial Secretary (Richard Farrant, "Report -- Peregrine Fixed Income Limited (in liquidation); Peregrine Investments
Holdings Limited (in liquidation)", 12 February, 2000), and is supplemented by information from sources as noted.
2
The statistical data from this section were taken from International Financing Review, Vol. 1216, 17 January, 1998.

Vincent Mak prepared this case under the supervision of Professor Michael J. Enright for class discussion. This
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case is not intended to show effective or ineffective handling of decision or business processes.
This case is part of a project funded by a teaching development grant from the University Grants Committee
(UGC) of Hong Kong.
Copyright 2001 The University of Hong Kong. No part of this publication may be reproduced or transmitted in
any form or by any means - electronic, mechanical, photocopying, recording, or otherwise (including the Internet)
- without the permission of The University of Hong Kong.
Ref. 01/124C 9 November, 2001

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 01/124C The Peregrine Debacle

and equities issues were Merrill Lynch, Goldman Sachs, Morgan Stanley Dean Witter
(Morgan Stanley DW), Credit Suisse First Boston (CSFB), SBC Warburg Dillon Read (SBC

t
Warburg DR), and Lehman Brothers. These banks also took important rankings in syndicated

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loans, but that field was, overall, more dominated by another group of players, notably
traditional banks such as Chase, Citibank, JP Morgan, Bank America, NationsBank, and First
Chicago (in that order, in terms of the value of transactions done in 1997). The major markets
were Western Europe and North America, and secondarily Australasia and Asia.

In the Asia-Pacific equities market, Goldman Sachs, ABN AMRO, China International

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Capital Corp., Morgan Stanley DW and Peregrine were the top five players in 1997 [see
Exhibit 1].

Fixed-Income Business
As a type of investment banking business, "fixed income" referred to the sales and trading
functions for government bonds, corporate bonds, money market instruments, mortgage and
asset backed securities, and fixed-income futures and options.

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The bulk of the fixed-income business involved issuing various types of bonds for companies
that wanted to raise capital, borrowing money from investors, paying interest, and then
returning the principal when the bond matured. In order to succeed in the fixed-income
business, an investment bank needed to link up the right lenders and borrowers. This required
an information service and distribution capacity to attract lenders/investors. The bank needed
the corporate finance skills necessary to structure financing programmes for its clients, skills
in derivatives trading so that the interest rates and currencies of new issues could be matched
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to clients' needs, and the ability to finance an inventory of tradable debt issued by corporate
customers until it could be sold on to investors. It also needed the infrastructure to manage
the whole process and control the risks involved. As with equity underwriters, fixed-income
underwriters generally tried to pre-sell issues so that they did not have to keep the investments
on their own books. The goal was to maintain a flow of new transactions rather than having
the investment bank risk its own capital on an issue. However, underwriters sometimes took
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on part of a new issue themselves, either because they thought the issue was a good
investment, or in an attempt to gain fees and commissions on the issue.

In 1997, the major players in the international bond market were Merrill Lynch and Goldman
Sachs, plus firms such as JP Morgan, Deutsche Morgan Grenfell (Deutsche MG), Morgan
Stanley DW, and CSFB. Merrill Lynch was also a leader in the Asian market, together with
Goldman Sachs, Lehman Brothers, and Morgan Stanley DW [see Exhibit 1].
No

Peregrine

Peregrine Investment Holdings Limited (PIHL), the parent company of the Peregrine Group,
was founded in 1988 by Frances Leung, who was soon joined by Philip Tose. Tose, then 43,
Peregrine's Chairman, had more than 20 years' experience in the financial services industry.
Prior to the establishment of Peregrine, he had spent 17 years with the Vickers da Costa
brokerage group in Hong Kong and, after Citicorp International Limited acquired Vickers to
become Citicorp Scrimgeour Vickers International, became the head of its Hong Kong office.
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From this position, he oversaw that company's Asian equities business worldwide. Tose also
was a council member of the Stock Exchange of Hong Kong (SEHK). Leung, aged 34, had
more than eight years' experience in corporate finance and was also a director of a number of
companies listed on the SEHK, including Guangzhou Investment Company Limited,
International Bank of Asia Limited, Shanghai Industrial Holdings Limited, and Shum Yip
Investment Limited. He was also working at Citicorp Scrimgeour Vickers International
before the founding of Peregrine.

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 01/124C The Peregrine Debacle

Tose and Leung had become disenchanted by Citicorp Scrimgeour Vickers International,
which had built its business on brokerage and corporate finance. The two suspected that

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Citicorp's commitment to the business had waned after the stock market crash in 1987. Leung

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first had the idea of Peregrine -- an independent investment bank focusing on brokerage and
corporate finance business in Hong Kong and Mainland Chinese markets -- and then invited
Tose to join. Mainly through Leung's connections, the company became associated with the
Hong Kong tycoons Li Ka-shing (Chairman of Cheung Kong Holdings) and Gordon Wu
(Managing Director of Hopewell Holdings) and Hong Kong's leading Mainland China-based
company, Citic Pacific Investment Group, headed by Larry Yung, son of the Peoples'

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Republic of China's Vice-President Rong Yiren. These three took small stakes in Peregrine
when it was established and subsequently formed the core of its client base. Peregrine was
listed in Hong Kong in 1990, with Cheung Kong Holdings having a 15.5 per cent stake.

In its early years, Peregrine prospered by focusing on corporate finance and equities sales and
research, mostly for Hong Kong and Mainland China-based companies. The introduction of
Mainland Chinese company shares into the Hong Kong Stock Exchange in October 1992 was

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a great boost to Peregrine's business; turnover almost tripled from 1992 to 1993. Peregrine
earned a reputation for helping Mainland Chinese companies raise capital, most notably
through listing in Hong Kong. As a consequence, Leung was dubbed "the father of red chips"
by the local media. 3 An industry observer commented:

If you wish to be involved in deals in Hong Kong and China, you have to
listen [to Peregrine] … They have their finger on the pulse more than anyone
in Hong Kong.
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- Michael Thomas, fund manager,
Martin Currie Investment Management Ltd.4

Meanwhile, Peregrine also expanded into other countries in South East Asia by means of
joint-venture companies; it was said to back "the wildest kinds of joint ventures in Myanmar,
North Korea, and Vietnam". 5 It opened offices as far afield as India in the early 1990s. In
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February 1994, Peregrine was named fund manager of the new Asian Infrastructure Fund, a
US$990 million private investment scheme backed by George Soros (the international
financier) for Asian power and transport projects.

When Peregrine was established, Tose conceived of it as a boutique operation i.e. a brokerage
firm concentrating on a small niche market.6 Later, Peregrine began to see itself as a regional
investment bank, but it was best known for its powerful Chinese connections and "brash and
aggressive" style of banking. 7 The firm's connections with major local and Mainland Chinese
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businessmen helped it land many deals, as did its ability to make decisions quickly. Of
Peregrine's speed in making deals, one competitor said that, being an independent firm based
in Asia, Peregrine could "make decisions on the spot" instead of checking with headquarters
overseas.8 One report said that once Li Ka-shing called Tose at 4 p.m., and that Tose
committed to a HK$5.3 billion deal for Cheung Kong two minutes later.9 But Peregrine also
"causes some eyebrows to be raised" for "taking equity in companies it brings to market",
according to a report in 1994 -- though Leung denied any conflict of interest.10 Some of
Peregrine's actions even brought notice from the regulating authority. For example, in 1993,
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3
Red chips were companies incorporated and listed in Hong Kong whose controlling shareholders were Chinese entities.
4
Robert Steiner, "Hong Kong's high flying Peregrine faces a test", The Wall Street Journal, 6 December, 1993.
5
Deborah Orr, "Peregrine's downfall", Institutional Investor, February 1998.
6
"Asian players", Euromoney, December 1996.
7
Simon Holberton, "Soaring Peregrine seeks central role in Asian bond market", Financial Times (London), 12 April, 1994.
8
"The best emerging markets banks in the world", Global Finance, May 1997.
9
Steven Irving, "Peregrine's still flying", Euromoney, December 1997.
10
Simon Holberton, Financial Times (London), 12 April, 1994. US$1=HK$7.8.

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 01/124C The Peregrine Debacle

Hong Kong's Securities and Futures Commission (SFC) reprimanded Peregrine's brokerage
arm for engaging in "trading activity which was or was likely to be prejudicial to the interests

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of the investing public". 11 The upshot was that Peregrine paid HK$3.5 million to the Stock

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Exchange's compensation fund and acknowledged the commission's complaint in a newspaper
advertisement.

Despite its critics, Peregrine accounted for 16 per cent of all the capital raised on Hong
Kong's stock market in 1992. 12 In 1993, Peregrine was the lead broker in nearly HK$25.5
billion of new issues, rights and placements in Asia; it acted as financial adviser to other deals

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worth more than HK$26 billion. In the same year, Peregrine was responsible for more than
60 per cent of the new listings (by value) on the Hong Kong Stock Exchange. The company's
spectacular growth is outlined in Exhibits 3A and 3B. Tose predicted in April 1994 that the
company's net assets would grow from US$500 million to US$2 billion in four years, making
Peregrine a serious global player.13

Towards the end of 1993, Tose and Leung believed that the fast growth of Asian economies

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and Mainland China's further opening would attract major investment banks to Hong Kong.
Given Peregrine's size and limited business coverage, Tose and Leung decided that they had
to be prepared when those firms committed to Asia on a large scale -- which was expected to
happen in two years or so. The two leaders felt that Peregrine had to use its capital and
strategic position to expand.

Peregrine Fixed Income

In April 1994, Peregrine started a corporate fixed-income business called Peregrine Fixed
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Income Limited (PFIL). Tose and Leung decided on establishing PFIL because they had
already had relationships with corporates through equity-related activities, and they could see
that corporates could benefit from widening the choice of debt finance available to them
beyond traditional forms of bank financing. Leung also told the Financial Times that they got
into the fixed-income business because Peregrine was preparing to enter the bond market of
Asia, especially Mainland China, and that PFIL would help smooth the company's earning
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profile, as profits from brokerage and corporate finance were quite volatile.14

Since its founding, Peregrine had been an equity house, with Tose handling sales and
distribution, Leung heading origination, and Peter Wong, also recruited from Citicorp, in
effect the chief operating officer. This structure was changed after the establishment of PFIL.
Tose and Leung were conscious of the risk for Peregrine in diversifying into the fixed-income
business. PFIL would require new operational systems, more sophisticated inventory
financing, greater capability to conduct foreign exchange and derivative transactions, and
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better risk management. Tose became the Chairman of PFIL and Andre Lee, who switched
from Lehman Brothers' Hong Kong operations, became its Managing Director. Lee also
brought with him a team of 14 people from Lehmann Brothers. Tose oversaw Lee and his
fixed-income team, and trusted Lee implicitly, eventually asking Lee's advice on issues about
other parts of the Group.

PFIL specialised in the origination, distribution, and trading of fixed-income securities for
Asian issues in local currencies and US dollars. Its emphasis was on corporate bonds for
premier issuers with an initial focus on those in Hong Kong, Indonesia, Malaysia, and
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Thailand. PFIL emphasised infrastructure debt financing and Lee believed this line of

11
Robert Steiner, The Wall Street Journal, 6 December, 1993.
12
Robert Steiner, The Wall Street Journal, 6 December, 1993.
13
Simon Holberton, Financial Times (London), 12 April, 1994.
14
Simon Holberton, Financial Times (London), 12 April, 1994.

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 01/124C The Peregrine Debacle

business would "be the real phenomenon that will create Asian bond markets". 15 He
explained his strategy succinctly in a retrospective interview:16

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Asian corporates in 1994 to 1995 were a non-investment-grade market. I
also felt strongly that Asian governments would not sponsor the growth of
their own local bond markets … It was clear to me that the growth in the
Asian bond markets would come from the corporate sector and so would the
infrastructure financing. So that was where the focus should be, on non-
investment-grade, non-rated corporates.

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The PFIL business was characterised by willingness to undertake large transactions in relation
to Peregrine's own size [see Exhibit 4A], and it was often left with unsold portions of new
issues. Therefore, PFIL's inventory of debt holdings and derivative positions grew.

The creation of the team was controversial within the Group, and there was a culture clash
between the "English" business tradition of the existing business and the more bracing

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"American" way of the new staff. Lee himself admitted that his team encountered resentment
from other people at Peregrine "from day one, definitely"; 17 even more telling was that, as he
remembered:

But after a period of time, we sort of stopped being concerned about it and
said: we'd better start focusing on our own business and not worry about
anything else … Unfortunately, I think it probably made it worse, because
when we just focused on our business and did nothing else, the suspicion and
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the resentment just grew.

Tension within the Group grew following a 1995 change from country line management to
product line management. The country managers, who previously had a great deal of
independence, had to follow product line heads for their country strategy. Tose then began to
replace country heads with fixed-income people, who made changes that, Lee admitted,
created "feelings that somehow fixed income was trying to take over the firm" and "not only
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resentment, but outright hostility because they [the new country heads] were fixed-income
guys". 18

Peregrine also reformed its senior management structure at the end of 1995. The board of
PIHL ceased to actively manage the Group and became like a board of governors. An
Executive Committee (EXCO) was set up that was supposed to be responsible for the active
management of the Group. The EXCO included managing directors, each of whom would be
No

responsible for one product line. Later it turned out that the EXCO seldom met and acted
more like a discussion group than a decision-making body. The decision-making went to the
managing directors. For PFIL, Tose and Lee effectively called the shots, without restraint
from any formal body at Group level. The board of PFIL also became like a rubber stamp.

PFIL's initial performance, however, exceeded expectations. It soon accounted for a

predominant part of the Group's turnover, and led to ever more dramatic growth [see Exhibits
3A and 3C]. Its credit and market research operations were prolific and well received.
Peregrine's fixed-income team grew to 80 people by end of 1995, 165 by end of 1996, and
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220 by mid-1997, out of a total of roughly 1,700 employees in the Peregrine Group by that

15
David Lanchner and Charles Thurston, "Project finance's best: Bank finance", Global Finance, September 1997.
16
Peter Lee, "Peregrine's last days, by Lee", Euromoney, April 1998.
17
Peter Lee, Euromoney, April 1998.
18
Peter Lee, Euromoney, April 1998.

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 01/124C The Peregrine Debacle

time.19 According to Group reports, PFIL had been a market leader and had the world's
largest team dedicated to Asian currency fixed-income products since 1995.

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Peregrine in 1997

By 1997, Peregrine had transformed itself into Asia's most dynamic investment house, with
1,700 staff and 33 offices conducting business in 15 countries. Peregrine had organised itself
into five core business areas: equity products, fixed-income products, direct investments, asset
management, and property investment and development, all focused on deals in Asia [see

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Exhibit 3D]. Of the different regional businesses, Greater China remained the "centre of
excellence" and "very active particularly in the equities area" by mid-1997. 20 From 1994 to
1997, Peregrine estimated that it had raised US$8.2 billion for Mainland China-related
companies; furthermore, it had lead managed 35 per cent of those issues on a sole or joint
basis.21 Exhibits 3A to 3C profile some of Peregrine's businesses in 1996-1997.

Peregrine had earned a reputation as an aggressive and fast growing firm. Euromoney, in an

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article in December 1996, stated that Tose and Leung's mission to "create a regional
powerhouse" had succeeded. It described the partnership in the following way: "While Leung
provides the all important Mainland China connections and expertise, Tose's razor-sharp mind
surveys Asia and weighs its strategic implications."22

In January 1997, the Japan Bond Research Institute assigned PIHL a Preliminary Rating for
Long-term Currency Debt of BBB+,23 a move described by the Group as "a landmark
occasion". (Peregrine had a major part of its funding from Japanese firms). Two months
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later, the same institute gave PIHL the following ratings:24 Foreign Currency Unsecured
Short-term Debt (Non-Subordinated): A-2, Hong Kong Dollar Unsecured Long-term Debt
(Non-Subordinated): BBB+, and Hong Kong Dollar Unsecured Short-term Debt (Non-
Subordinated): A-2.

In the equities business, Peregrine was ranked among the world's top 20 bookrunners and
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among the top five in Asia-Pacific [see Exhibit 2]. Peregrine was awarded the Best Domestic
Securities House in Hong Kong and Best Foreign Securities House/Investment Bank in China
by Finance Asia in June 1997, and the Best Foreign Securities Firm in China by Euromoney
in July 1997. In Global Finance's 1997 emerging markets banks awards (announced in May
1997), Peregrine won the "Best in Asia" and "Equity Origination (Asia)" awards. Peregrine
was also a major player in Asian floating rate notes. Both Institutional Investor and Global
Finance designated PFIL as the top Asian debt research house, according to the Group's
Interim Report for the Six Months Ended 30 June, 1997.
No

Lost in the widespread acclaim were some hints of concern. In a section in its January rating
commentary on Peregrine entitled "Unfavourable Points", the Japan Bond Research Institute
pointed out some weaknesses: 25

1) Peregrine's core operations of corporate finance, equity brokerage, and

fixed income are highly dependent on Hong Kong and other Asian capital
markets, which are sensitive to US interest rates and overseas investment
fund flows. As a result, most fixed expenses are expected to continue to
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19
Annual Reports and Interim Report For The Six Months Ended 30 June, 1997, Peregrine Investments Holdings Limited.
20
Interim Report for the Six Months Ended 30 June,1997, Peregrine Investments Holdings Limited.
21
"With friends like these …", Euromoney, Deceomber 1997.
22
Euromoney, December 1996.
23
The Japan Bond Research Institute, 16 January, 1997. Ratings of BBB or above were considered investment grade.
24
News Release, The Japan Bond Research Institute, 17 March, 1997.
25
The Japan Bond Research Institute, 16 January, 1997.

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 01/124C The Peregrine Debacle

be covered by income that is highly dependent on the performances of

Asian markets.

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2) In tandem with the rapid growth of its fixed-income business, Peregrine's
credit risk exposure is increasing.

Other signs of Peregrine's vulnerability that were not clear to the public should have been
clear to its own senior staff. Although the Group Credit Risk Management unit was
strengthened with new recruits and a Group-wide credit risk management policy was

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developed and documented by 1995, it was not supported at senior management level. The
policy was furthermore never applied in PFIL, which managed risk on its own. It later
became known that in mid-1997, US$134 million of PFIL's debt inventory (or 17 per cent of
the total) had been held for more than three months [see Exhibit 4B]. Of this, US$46.5
million had been held for more than six months. Peregrine's funding strategy, however,
assumed that the holding period of its inventory of trading assets was no more than three
months. Thus, the US$134 million could be seen as bad debt, a sizeable risk for a Group with

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capital of only US$900 million [cf. Exhibit 4A].

Drafts of internal audits of PFIL in 1996 and 1997 pointed to flaws in risk control that were
not promptly followed up by the Group's senior management. In fact, the internal audits of
PFIL's business in 1996 and 1997 were never completed due to unresolved disagreements
between the internal auditors and business managers. Peregrine's external auditor, Deloitte,
limited its service to checking the accounting figures and the assumptions behind Peregrine's
accounting policies, rather than performing a thorough analysis of the Group's risk profile.
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The Fall

The Asian crisis was generally reckoned to have started in mid-May 1997, when there was a
speculative attack on the Thai Baht, and Thailand's largest finance company, Finance One,
failed. On 19 June, the Thai finance minister resigned. Soon after, the central bank
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suspended 16 Thai companies. At the end of June, the Baht was allowed to float, and
promptly depreciated by 13 per cent against the US dollar. In July, the Indonesian Rupiah
began to be affected, and its official trading band was widened from eight to 12 per cent. The
stock markets of both countries fell [cf. Exhibit 5].

The Baht stabilised towards the end of July, but then began to sink steadily during August and
September. By the end of September its dollar value was some 23 per cent below its pre-
floating level at the end of June. The Indonesian Rupiah continued to fall, and by the end of
No

September was 29 per cent down against the US dollar, compared with its mid-July level.
The Hong Kong stock market also began a steep fall towards the end of September, and by 28
October was over 44 per cent down from its value at the beginning of August [see Exhibit 5].

In November, the Rupiah stabilised following agreement between the International Monetary
Fund and the Indonesian government for a financial support package at the end of October.
But towards the end of November, the Rupiah plunged again, and by middle of December, the
Rupiah was almost 40 per cent below its level of one month earlier.
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Meanwhile, on 24 November, Yamaichi Securities Co. Ltd., the fourth-largest brokerage in

Japan, was closed after continued heavy losses and revelations of suspected illegal practices;
it was the third major Japanese financial institution to collapse that month. The market in
Korea also began to plummet [see Exhibit 5].

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 01/124C The Peregrine Debacle

The Initial Impact on Peregrine

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As the Asian markets fell, PFIL's large portfolio of local-currency bonds and commercial
paper had ever dimmer prospects. Bids in the market went from few to non-existent and the

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phrase "toxic waste" began to be used to describe the sort of debt paper that Peregrine had
pioneered. Korean merchant banks that had constituted the major share of buyers of
Peregrine's products now had troubles of their own and wanted to sell (Peregrine also had a
failing joint venture in Korea).26 Japanese financial institutions, also major sources of funds
for Peregrine, were themselves too deep in trouble to provide help.

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PIHL's share price fell by 60 per cent between early August and late October [see Exhibit 6],
far more than the fall in Hong Kong's Hang Seng Index. The fall reduced Peregrine's ability
to fund itself by stock lending. As the value of the stock it lent fell, new stock lending
generated less cash and old stock lending had to be topped up by providing additional
collateral, or cash had to be returned to borrowers, thereby creating a funding drain. Given its
close association with Asian markets, rumours that Peregrine was suffering huge losses from
the Asian crisis began to circulate. The Group was dealt a further blow when, in late

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November, the United States National Association of Insurance Commissions (NAIC)
assigned Peregrine a credit rating of 3, one below the coveted and targeted "investment
grade". NAIC had been concerned with Peregrine's earnings volatility and the possible
impact of the Asian crisis on its future earnings.

Peregrine's management had anticipated problems in Thailand, and in the first half of 1997
had sought to reduce the volume of new transactions for Thai corporates. It turned to
Indonesia and saw it as a healthier market. But when the Rupiah began to depreciate in July,
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Peregrine's senior management became generally pessimistic about Asia's prospects. PFIL
stopped actively searching for new business; the reason for this had more to do with concerns
about the quality of new business than Peregrine's financial condition, but it would not turn
away attractive businesses offered to them or stop transactions that were in process.
Peregrine's mid-year interim report presented the Group's prospects as follows:27
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The start to the second half of the year has seen significant volatility in Asian
equity, debt and currency markets. This volatility is likely to continue for
most of the rest of the year and will lead to generally higher interest rates
throughout the region. However, the Greater China Region continues to be
very active particularly in the equities area. As such the equity products
division should have a satisfactory second half of the year. Fixed income is
likely to see a generally more difficult trading environment but opportunities
will undoubtedly come form the restructuring of company balance sheets.
No

In August, Lee initiated a reorganisation of PFIL. The firm, originally organised along a pure
business line basis, was divided into four teams. Team 1 was responsible for solving potential
credit problems; Team 2 for existing business -- origination, bond trading, sales, derivatives,
and foreign exchange; Team 3 for developing stronger domestic fixed-income business; and
Team 4 for market risk trading.

The Steady Safe Deal

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Steady Safe was an Indonesian taxi and bus company that PFIL had started dealing with in
October 1996. PFIL's credit research team in early 1997 praised Steady Safe for its "strong
cashflow, low leverage and high interest coverage". By then, Peregrine was also structuring a
package to finance the merger of Steady Safe and Citra Marga Nusaphala Persada (CMNP),
an Indonesian toll road developer with which President Suharto's daughter was associated. In

26
Steven Irvine, Euromoney, December 1997.
27
Interim Report for the Six Months Ended 30 June,1997, Peregrine Investments Holdings Limited.

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 01/124C The Peregrine Debacle

early 1997, Peregrine agreed to issue three tranches of debt on behalf of Steady Safe, totalling
some US$350 million, of maturity up to five years. Peregrine was obliged to provide short-

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term bridge financing pending the successful launch of long-term debt structures. It was a

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large-scale agreement compared to Peregrine's capital of around US$900 million at that time.
Lee had no doubt that PFIL was bound by the agreement to extend up to US$350 million to
Steady Safe, but he thought the exposure was unlikely to exceed US$150 million at any one
time.

The first substantial bridge loan as a result of the mandate was made to Steady Safe on 19

rP
June. By 19 August, PFIL had issued US$262 million in Steady Safe promissory notes.
However, when the promissory notes matured and the loans rolled over in the succeeding
months, PFIL could find fewer and fewer buyers to buy the new promissory notes issued to
replace the old ones. By 6 November, Peregrine held all the promissory notes, which
amounted to US$269 million. In late November, US$3.8 million was added to the Steady
Safe loan due to "unpaid cash amounts requested from Steady Safe". Meanwhile, the Jakarta
stock market was plunging. CMNP shares bought by Steady Safe that had been counted as

yo
US$166 million in collateral, by September were worth only US$60 million. Peregrine's
Steady Safe exposure eventually came to some US$270 million.

By late 1997, apart from Steady Safe, other PFIL clients, such as the Thai companies
Tanayong, Robinson Department Store, and Sahaviriya OA, also had trouble paying back
their debts to Peregrine. PFIL had issued various instruments to help them raise capital,
including bonds, currency swaps, and interest rate swaps involving Thai Baht and US dollars.
The rapid devaluation of the Baht in the latter half of 1997 resulted in huge losses on the
op
swaps for the companies and seriously increased Peregrine's exposure to them. In the first
two cases, Peregrine had to restructure the swaps to 25-year loans; in the third, negotiations
on restructuring the swaps were never completed.

Trouble Looms
Matters went from bad to worse in late 1997 and Peregrine's senior management were busy
tC

fighting rumours and maintaining that everything was well. It even announced that it had
hired a private investigator to trace the source of the rumours. In late October 1997, the
Group ran a full-page advertisement in major newspapers to clarify its financial position. The
advertisement included a last paragraph entirely in capital letters, stating:28

RUMOURS OF LOSSES BY PEREGRINE RUNNING INTO HUNDREDS

OF MILLIONS OF US DOLLARS AND OF PEREGRINE'S FINANCIAL
DEMISE ARE COMPLETELY FALSE.
No

The advertisement also stated that the Group had made total provisions of US$60 million for
bad loans, and made unaudited net profits in 1997 up to 24 October, although the profit figure
had fallen by some 30 per cent from that published in the half-year results [cf. Exhibit 3C].
Peregrine management maintained:

All major banking relationships and credit lines remain in place.

A BusinessWeek report in the same month even had Peregrine stating that it was planning to
Do

double its capital base to compete with big US banks.

PFIL did try to raise capital and sell down its inventory as fast as possible. A report quoted
company sources as saying that PFIL might have unloaded nearly US$2 billion in rapidly

28
Steven Irving, Euromoney, December 1997.

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 01/124C The Peregrine Debacle

depreciating Asian junk bonds during the autumn of 1997. 29 By the end of October,
Peregrine's Asian bond holdings were worth about US$1.2 billion. More than three-quarters

t
of these were Indonesian credits. By year-end, PFIL's inventory was less than US$700

os
million [see Exhibit 4B].

Hong Kong's Securities and Futures Commission initiated an inspection of Peregrine in

November 1997. In December 1997, Euromoney published an interview with Tose, who
hinted that the rumours were possibly being spread by competitors, and who blamed rumours
for causing Peregrine's problems:30

rP
We were - we are - a perfectly sound, profitable, functioning investment bank.
But the rumours were killing us. Rumours were taking away credit lines.
And members of credit committees that were sitting in New York or Frankfurt
or Paris or wherever the hell they were would pick up a newspaper every
morning and see Asia Inc. implodes -- again … They were pulling lines, and
saying [they would] reduce [their] risk to Asia … Under those circumstances

yo
you need to have a shareholder who is visible and recognised.

He also defended the fixed-income business. Responding to the interviewer's remark that "in
private some senior members of Peregrine blame fixed income for the firm's recent troubles",
Tose replied:

Why should they know? What the hell's it got to do with them? Why don't they
get on and do their business.
op
He went on to comment that those staff did not understand the fixed-income business (though
he did not deny that he and Leung also had little experience in it), and maintained that:

This [fixed-income] has been a very, very good business. It continues to be a

very good business.
tC

Prospects for New Investors

Almost immediately after the October announcement, Peregrine began talks with Zurich
Centre Investments (Zurich) about arranging an equity injection into the Group. On 17
November, it was announced that Zurich had entered into a conditional agreement to invest
US$200 million in Peregrine in the form of convertible preference shares -- although it knew
about the Steady Safe deal. In return, Zurich would obtain a 24.1 per cent equity stake in the
Group. 31 The new investor would be represented by three directors (out of nine) on the board
No

of PIHL. The three would constitute a blocking minority for certain key operational matters
including budgets, business plans, material capital transactions, and share repurchases.
Zurich would become the firm's biggest single shareholder.

Tose and Leung considered that, the Asian market being in such turmoil, Peregrine, as a
relatively small player strongly associated with the Asian markets, needed the shelter of a
strong partner. Zurich was the private equity investment arm of Swiss insurer, The Zurich
Group, one of the strongest insurance groups in the world. The NAIC rating further increased
the urgency of getting a strong investor; it had already closed off the prospect of substantial
Do

funding from two Japanese houses.32 Lastly, Peregrine's lines of credit had fallen from

29
Deborah Orr, Institutional Investor, February 1998.
30
Steven Irvine, Euromoney, December 1997.
31
Steven Irving, Euromoney, December 1997.
32
Earlier talks about inviting a Mainland Chinese financial institution to take a stake in the Group were also ended after the
Asian crisis began.

10

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 01/124C The Peregrine Debacle

US$141 million at the end of October (of which less than 25 per cent were drawn down), to
US$59 million by early December (of which two thirds were drawn down).

t
os
Word of the potential deal with Zurich came as a surprise in investment banking circles, as
Tose was long known to treasure his independence. But Tose said in December that if the
Zurich deal was going to be carried out Peregrine would survive the crisis and remain
"independent". 33 He said that Zurich was going to bring in money only, but not people who
would get a hand in running the company, while the Group was never "run by the board". As
Peregrine pursued a deal with Zurich it also continued to look for other investors. On 16

rP
December, it was announced that First Chicago International Finance Corporation (First
Chicago), one of Peregrine's largest creditors, would subscribe to US$25 million additional
preference shares (i.e. 2.4 per cent stake) of Peregrine, in a debt-for-equity swap. 34 First
Chicago was a subsidiary of First Chicago NBD Corporation, the eighth-largest US bank
holding company.

On 12 December, Peregrine published an interim report for the ten months up to 31 October,

yo
1997 [cf. Exhibit 3B and 3C]. Profit before tax was about HK$748 million, much less than
the corresponding figure of HK$1 billion for the first six months of 1997, implying a
substantial loss in the intervening months.

The Breaking Point

The Rupiah continued to fall in December and January. By the end of December, PFIL's
efforts on the financial reconstruction of Steady Safe had failed. Final discussions with
Zurich and First Chicago were due to start on 8 January, 1998. Despite Peregrine suggesting
op
more provisions against exposures including Steady Safe, Zurich and First Chicago demanded
a re-negotiation of the whole deal. Meetings were held in Peregrine's head office on 6
January, with First Chicago negotiators in one room and Zurich executives in another. A
witness to the negotiations said:35

Both teams [Zurich and First Chicago] came out from time to time, watching
tC

the screens as the Rupiah fell from 6,000 [to 1 USD] to 10,000 …We thought
about turning the machines off and telling them they were broken.

First Chicago withdrew first, followed almost immediately by Zurich. On 10 January, one
day after Zurich negotiators flew out of Hong Kong, Peregrine defaulted on a line of credit
with an unidentified US bank. Further defaults followed in the next two days. The Stock
Exchange of Hong Kong and the Securities and Futures Commission were informed and the
Securities and Futures Commission then required a cessation of all regulated business by the
No

Group.

Peregrine sought for various kinds of last minute help, including an appeal to the Hong Kong
Monetary Authority (HKMA) for liquidity support. The HKMA refused to bail out the
Group, reasoning that Peregrine's failure did not pose any systemic risk to the Hong Kong
economy. 36 When all its efforts had failed, Peregrine applied to the court for provisional
liquidators. Provisional liquidators were appointed to take charge of PIHL on 13 January and
of PFIL on 15 January.
Do

33
Steven Irving, Euromoney, December 1997.
34
Deborah Orr, Institutional Investor, February 1998.
35
Deborah Orr, Institutional Investor, February 1998.
36
Quak Hiang Whai, "Peregrine Debacle", Business Times (Singapore), 14 January, 1998.

11

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 01/124C The Peregrine Debacle

Conclusion

t
The causes of Peregrine's collapse remained controversial. Many blamed the Group's senior

os
management. In a packed press conference held after the liquidation of PIHL, however, Tose
denied responsibility for the fall of the firm. He said:37

What happened was a meltdown in a country. The Indonesian currency went

from 2,400 (in mid-March) [1997] … to 11,000 in January [1998]. Nobody
in their right mind would even have factored in 5,000 in their calculations.

rP
He also denied that Steady Safe was the main cause of the firm's downfall, or that Peregrine's
credit risk control was too lax. Leung, on the other hand, reminded the audience that his
equities division actually made money. Lee was not at that press conference. When, later, he
was interviewed by Euromoney,38 he denied that he or the Steady Safe deal led to Peregrine's
collapse, and instead blamed it on the Asian financial crisis.

In April 1999, the Financial Secretary of the Hong Kong Special Administrative Region

yo
appointed Richard Farrant to investigate the liquidation of PIHL and PFIL. His report was
released in February 2000. He did not refer to any acts of fraud or dishonesty in his report,
but criticised Tose and Lee, among five senior executives of the Group, for "failures of
performance rather than intention". Leung was not among the five.

In the end, as Farrant put it:

op
Peregrine closed because it ran out of cash. It could not realise assets or
close out derivative positions to generate cash fast enough to meet maturing
liabilities.

Farrant noted that Peregrine was a middle-sized company on its way of transforming into a
large-sized one, and it operated in an immature market. He said:
tC

Had Peregrine had the luxury of more time, it might have successfully made
the transition to a more broadly based investment banking business. But time
was not on its side.
No
Do

37
Quak Hiang Whai, Business Times (Singapore), 14 January, 1998.
38
Peter Lee, Euromoney, April 1998.

12

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 01/124C The Peregrine Debacle

EXHIBIT 1
THE WORLD INVESTMENT BANKING MARKET IN 1997

t
A. Equities

os
All International Equities: top 20 bookrunners by amount in 1997:

Amount Market share

Rank Name Tranches
(US$ million) (%)

rP
1 Goldman Sachs 96 17,090.98 14.89
2 Morgan Stanley DW 111 14,990.05 13.06
3 Merrill Lynch 111 9,685.41 8.44
4 CSFB 54 8,216.56 7.16
5 UBS 44 5,841.80 5.09
6 SBC Warburg DR 40 5,594.51 4.87
7 Dresdner-KB 31 4,556.66 3.97

yo
8 Salomon Smith Barney 39 4,513.73 3.93
9 ABN AMRO Rothschild 43 4,396.23 3.83
10 Deutsche MG 27 4,293.68 3.74
11 Paribas 20 3,819.14 3.41
12 Robert Fleming 27 2,263.03 1.97
13 Societe Generale 9 2,040.56 1.78
14 China International Capital Corp. 3 2,002.91 1.74
op
15 ING Barings 18 1,930.39 1.68
16 JP Morgan 26 1,830.24 1.59
17 HSBC Investment Bank 12 1,771.13 1.54
18 Lehman Brothers 30 1,699.22 1.48
19 Peregrine 27 1,576.10 1.37
20 Credit Lyonnais 20 1,052.48 0.92
tC

All bookrunners 906 114,804.60 100.00

B. Bonds

All International Bonds: top 10 bookrunners in 1997

No. of Total Market share

Rank Managing bank or group
No

issues (US$ million) (%)

1 Merrill Lynch 314 1,133.81 7.94
2 JP Morgan 215 1,056.34 6.68
3 Goldman Sachs 136 969.42 5.79
4 Deutsche MG 294 874.88 5.29
5 Morgan Stanley DW 213 658.33 5.05
6 CSFB 171 519.70 4.52
7 SBC Warburg DR 168 513.97 4.45
8 Lehman Brothers 138 424.68 4.40
Do

9 Salomon SB 127 417.94 3.57

10 ABN AMRO HG 163 406.65 3.50
All bookrunners 3,648 13,875.49 100.00

(cont'd next page)

13

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 01/124C The Peregrine Debacle

EXHIBIT 1 (CONT'D)
THE WORLD INVESTMENT BANKING MARKET IN 1997

t
All International Bonds by Region in 1997

os
Market Share by
Region No. of issues Amount in US$ million
amount (%)
Asia (excluding
450 78,339.45 8.98
the Middle East)

rP
Australasia 89 17,677.26 2.03
Western Europe 1,918 420,337.83 48.19
Eastern Europe 49 12,167.85 1.40
Middle East 16 2,370.38 0.27
Africa 13 6,565.60 0.75
North America 738 187,100.90 21.45
Latin America/
268 72,552.53 8.32

yo
Caribbean
Supranational 497 74,159.46 8.50
Multinational 5 950.00 0.11
Total 4,043 872,221.28 100.00

Source: IFR Securities Data cited in International Financing Review, Vol. 1216, 17 January, 1998.
op
C. Financial Information of Selected Investment Banks in 1997

Revenues Net Income Total Assets

Name
(US$ million) (US$ million) (US$ million)
Goldman Sachs 20,433 2,746 178,401
tC

Morgan Stanley DW 27,132 2,586 302,287

Merrill Lynch 31,731 1,906 298,057
CSFB 7,128 826 310,353
Lehman Brothers 16,883 647 151,705
Peregrine (Up to 31
28,571 68 3,101*
October, 1997)
No

*1996 figure.
Source: Hoover's Company Profile Database; company Websites and reports; The Goldman
Sachs Group, Inc., Registration Statement, Securities and Exchange Commission, the United
States, 24 August, 1998; Peregrine Investments Holdings Limited, Interim Report for the Ten
Months Ended 31 October, 1997, and Annual Report 1996.
Do

14

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 01/124C The Peregrine Debacle

EXHIBIT 2
INVESTMENT BANKING LEAGUE TABLES FOR ASIA IN 1997

t
A. Equities

os
Top 10 bookrunners of Asia-Pacific deals in 1997:

Total Market share

Rank Name Tranches
(US$ million) (%)

rP
1 Goldman Sachs 18 4,644.09 17.60
2 ABN AMRO Rothschild 17 2,040.75 7.73
3 China International Capital Corp. 3 2,002.91 7.60
4 Morgan Stanley DW 13 1,796.83 6.81
5 Peregrine 28 1,766.17 6.69
6 Merrill Lynch 14 1,557.12 5.90
7 ING Barings 10 1,381.73 5.24

yo
8 Flemings 22 1,313.76 4.98
9 SBC Warburg 12 1,193.41 4.52
10 BZW 7 1,010.8 3.83
All bookrunners 219 26,390.79 100.00

Top 10 bookrunners of Asia-Pacific deals in 1997 (excluding Japan):

op
Total Market share
Rank Name Tranches
(US$ million) (%)
1 Goldman Sachs 18 4,644.09 18.75
2 ABN AMRO Rothschild 17 2,040.75 8.24
3 China International Capital Corp. 3 2,002.91 8.09
4 Peregrine 28 1,766.17 7.13
tC

5 Morgan Stanley DW 12 1,729.27 6.98

6 ING Barings 10 1,381.73 5.58
7 Merrill Lynch 13 1,355.62 5.47
8 Flemings 21 1,273.76 5.14
9 BZW 7 1,010.89 4.08
10 HSBC Investment Bank 7 958.16 3.87
All bookrunners 209 24,765.76 100.00
No

(cont'd next page)

Do

15

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 01/124C The Peregrine Debacle

EXHIBIT 2 (CONT'D)
INVESTMENT BANKING LEAGUE TABLES FOR ASIA IN 1997

t
B. Bonds

os
All Asian Floating Rate Notes:
Top 10 bookrunners - 1997 (excluding equity-related transactions)

No. of Total
Rank Managing bank or group Market share (%)

rP
issues (US$ million)
1 Deutsche MG 11 1,133.81 8.17
2 Merrill Lynch 10 1,056.34 7.61
3 SBC Warburg DR 7 969.42 6.99
4 UBS 7 874.88 6.31
5 Standard Chartered 5 658.33 4.74
6 ANZ 3 519.70 3.75

yo
7 Peregrine 13 513.97 3.70
8 Sumitomo Bank 10 424.68 3.06
9 Dresdner KB 6 417.94 3.01
10 Chase 5 406.65 2.93
All bookrunners 120 13,875.49 100.00

All Asian Fixed-rate Bonds:

op
Top 10 bookrunners - 1997 (excluding equity-related transactions)

No. of Total
Rank Managing bank or group Market share (%)
issues (US$ million)
1 Merrill Lynch 19 4,160.59 16.18
2 Goldman Sachs 12 2,948.14 11.46
tC

3 Lehman Brothers 9 2,615.06 10.17

4 Morgan Stanley DW 11 2,534.05 9.85
5 JP Morgan 11 2,298.06 8.93
6 Salomon SB 7 1,858.69 7.23
7 Daiwa Securities 8 1,337.52 5.20
8 Nomura 4 1,256.38 4.88
9 UBS 4 1,249.93 4.86
No

10 CSFB 6 1,074.66 4.18

All bookrunners 108 13,875.49 100.00

(cont'd next page)

Do

16

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 01/124C The Peregrine Debacle

EXHIBIT 2 (CONT'D)
INVESTMENT BANKING LEAGUE TABLES FOR ASIA IN 1997

t
All International Bonds, by Asian Region, in 1997:

os
Region No. of Amount in US$ million Market Share (%)
Issues
Mainland China 17 3,567.51 4.55
Hong Kong 29 6,649.37 8.49

rP
India 12 1,810.68 2.31
Indonesia 15 4,969.57 6.34
Japan 248 37,802.86 48.26
Malaysia 12 2,194.53 2.80
Pakistan 2 460.00 0.59
The Philippines 13 2,591.26 3.31
Singapore 3 625.00 0.80
South Korea
Sri Lanka
Taiwan
Thailand
All Asia
yo 68
1
19
11
450
12,781.88
50.00
2,524.52
2,312.27
78,339.45

Source: IFR Securities Data as cited in International Financing Review, Vol. 1216, 17 January,
16.32
0.06
3.22
2.95
100.00
op
1998.
tC
No
Do

17

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 01/124C The Peregrine Debacle

EXHIBIT 3A
FINANCIAL SUMMARY OF THE PEREGRINE GROUP
Do
1989 1990 1991 1992 1993 1994 1995 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Turnover 1,798,143 882,262 1,855,062 4,237,968 11,437,982 28,900,979 84,389,315 175,523,618
Profit before taxation 50,373 138,604 344,702 778,467 1,028,212 778,534 1,101,543 1,024,170
Profit attributable to
44,371 384,489 318,254 676,058 855,555 650,734 1,009,612 855,645
No
shareholders
Total assets 1,365,184 1,357,596 4,181,450 6,258,626 7,262,548 13,840,746 14,602,443 24,190,188
Total liabilities 151,507 280,329 1,116,815 2,799,047 3,162,024 9,141,484 8,713,301 17,499,783
Total shareholders' funds 1,213,677 1,077,267 3,064,635 3,459,579 4,100,524 4,699,262 5,889,142 6,690,405
tC
EXHIBIT 3B
RESULTS OF PEREGRINE GROUP IN 1997

Ten months ended Six months ended Six months ended

31 October, 1997 30 June, 1997 30 June, 1996
op
HK$'000 HK$'000 HK$'000
Turnover 224,261,977 151,228,719 77,660,180
Operating profit 894,249 1,130,657 335,308
Share of results of associated companies (145,873) (104,859) 172,789

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Profit before taxation 748,376 1,025,798 508,097
yo
Taxation (216,488) (245,938) (91,662)
Profit after taxation 531,888 779,860 416,435
Minority interests (145,187) (144,255) (17,569)
Profit attributable to shareholders 386,701 635,605 398,866
rP
Source: Peregrine Investments Holdings Limited, Annual Reports, Interim Report for the Six Months Ended 30 June, 1997 and Interim Report for the Ten Months
Ended 31 October, 1997.
os
t

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18
 01/124C The Peregrine Debacle

EXHIBIT 3C
THE PEREGRINE GROUP,TURNOVER AND PROFIT BREAKDOWN BY ACTIVITIES
Do
Ten months ended Six months ended
1996 1995
31 October, 1997 30 June, 1997
Turnover Operating Turnover Operating Operating Operating
HK$'000 profit before HK$'000 profit before Turnover profit before Turnover profit before
taxation taxation HK$'000 taxation HK$'000 taxation
No
HK$'000 HK$'000 HK$'000 HK$'000
Equity products 38,655,338 225,959 18,180,194 387,718 26,738,258 284,652 12,452,093 169,423
Fixed-income products 178,656,808 245,150 128,376,212 275,112 143,481,268 381,499 67,429,205 159,220
Direct investments 93,446 (51,016) 23,813 (24,890) 182,348 45,653 280,442 (23,643)
Asset management 19,862 (26,002) 10,694 (13,700) 13,752 26,937 6,183 (18,945)
tC
Property investment and
837,603 290,539 756,316 269,983 120,307 65,484 - -
development
Investment trading 5,915,306 270,725 3,872,744 265,604 4,858,816 145,803 4,097,601 702,047
Foreign exchange and
- - - - - - 16,223 (23,296)
commodities brokerage
op
Other financial revenues 83,614 83,614 68,746 68,746 128,869 128,869 107,568 107,568
Totals 224,261,977 1,068,969 151,228,719 1,228,573 175,523,618 1,025,023 84,389,315 1,071,374
Group management and
(174,720) (97,916) (176,410) (169,308)

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administrative expenses
Operating profit 849,249 1,130,657 848,613 902,066
yo
Share of results of
(145,973) (104,859) 175,557 199,477
associated companies
Profit before taxation 784,376 1,025,798 1,024,170 1,101,543
rP
Source: Peregrine Investments Holdings Limited, Annual Report 1996, Interim Report for the Six Months Ended 30 June, 1997 and Interim Report for the Ten
Months Ended 31 October, 1997.
os
t

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19
 01/124C The Peregrine Debacle

EXHIBIT 3D
PEREGRINE GROUP, TURNOVER AND PROFIT BREAKDOWN BY REGIONS

t
1. By Geographical Location

os
1996 1995
Turnover Operating Profit Turnover Operating Profit
(%) before Tax (%) (%) before Tax (%)
Hong Kong 53 77 24 86

rP
United Kingdom 11 2 13 1
United States 3 1 1 1
Asian Countries 33 20 62 12
Total 100 100 100 100

2. Group Turnover in 1996 by Market of Origin39

yo Market of Origin
Indonesia
Thailand
Hong Kong/Mainland China
Korea
Malaysia
Singapore
Turnover (%)
38
20
15
5
4
4
op
United States 4
India 3
Taiwan 3
Others 4
Total 100
tC

Source: Peregrine Investments Holdings Limited, Annual Report 1996.

No
Do

39
That is, the location of the market in which the underlying security transaction took place.

20

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 01/124C The Peregrine Debacle

EXHIBIT 4A
PEREGRINE'S FIXED-INCOME DEAL HIGHLIGHTS

t
Total Group's Net

os
Year Amount Examples of Deals Asset by
Raised End of Year
US$275 million convertible bonds for Hutchison
Whampoa Limited, a Hong Kong-based
US$602 million
international conglomerate.
(US$526

rP
1994 NA US$30 million subordinated bond issue for
Bakornthon Bank, Thailand. million by end
of 1993)
US$40 million five year debenture for the
Industrial Finance Corporation of Thailand.
US$175 million three-year floating rate note
(FRN) issue for Citra Marga Nusaphala Persada
(CMNP), an Indonesian toll road developer.

yo
US$9 US$90 million three-year FRN for China
1995 US$755 million
billion Overseas Holding Limited, a Hong Kong
construction company and real estate developer.
US$78 million five-year FRN for Renong
Berhad, a Malaysian infrastructure developer.
US$1 billion Asian Currency Note Program for
Asia Pulp & Paper International Finance
Company (APP), an Indonesian pulp and paper
op
company.
US$200 million FRN for APP.
US$22 US$200 million FRN for Dharmala Intiutama
1996 US$858 million
billion International, an Indonesian conglomerate.
US$65 million FRN for Healthcare Pantai
(Cayman) Limited, a Malaysian health care
tC

specialist.
US$50 million FRN for Videocon International
Limited, an Indian electronics manufacturer.
US$100 million FRN for Perbadanan Johor, a
About US$900
Malaysian company.
1997 million in mid-
US$1.1 US$638 million FRN for APP Global Finance
(First 6 1997. About
billion Cayman Limited.
months) 1.1 billion by
No

US$35 million FRN for Videocon International late-1997.*

Limited.

Note: for the deals with Steady Safe, refer to the case proper.

Sources: Annual Reports, Interim Report For The Six Months Ended 30 June, 1997, Peregrine
Invesments Holdings Limited, and Richard Farrant, "Report -- Peregrine Fixed Income Limited
(in liquidation); Peregrine Investments Holdings Limited (in liquidation)", 12 February, 2000.
Do

* Philip Tose, as quoted by Steven Irving in "Peregrine's still flying", Euromoney, December
1997.

21

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 01/124C The Peregrine Debacle

EXHIBIT 4B
PEREGRINE'S FIXED-INCOME DEBT INVENTORY
Do
Date 91-180 days As % of Total >180 days As % of Total Total Aged As % of Total Total Inventory
(dd/mm/yy) (US$ millions) Inventory (US$ millions) Inventory (US$ millions) Inventory (US$ millions)
24/11/95 40.29 9 42.11 10 82.40 19 438.89
12/01/96 43.02 10 12.74 3 55.76 13 449.29
26/01/96 55.76 12 14.74 3 70.5 15 461.72
No
23/02/96 24.65 7 15.07 5 39.72 12 341.54
15/03/96 17.85 5 10.86 2 28.71 7 418
19/04/96 99.02 24 6.66 2 105.68 26 415.33
31/05/96 97.88 24 0.67 0 98.55 24 407.39
(Reports not found for the period in between)
tC
25/04/97 113.67 9 33.59 3 147.26 12 1217.4
23/05/97 106.91 10 36.89 4 143.8 14 1059.62
20/06/97 87.58 11 46.52 6 134.1 17 795.39
31/07/97 85.61 7 58.04 5 143.65 12 1258.4
op
29/08/97 79.95 7 41.08 3 121.03 10 1189.29
02/10/97 62.17 9 79.36 11 141.53 20 700.82
31/10/97 206.06 18 80.11 7 286.17 25 1151.45
27/11/97 155.55 22 99.47 15 255.02 37 691.60

Permissions@hbsp.harvard.edu or 617.783.7860
31/12/97 268.09 38 144.36 21 412.45 59 694.21
yo
Note: this table can be seen as a record of the bad debts that Peregrine was holding at various time (in absolute amounts and as percentages of Peregrine's total
inventory). The Group's policy involved assuming that the holding period of its inventory of trading assets was no more than three months, so any issue held
more than three months or 90 days should be considered "aged".
rP
Source: Internal Peregrine Aged Inventory Fixed Income Reports prepared by Group Market Risk, Peregrine, as cited by Richard Farrant in "Report -- Peregrine
Fixed Income Limited (in liquidation); Peregrine Investments Holdings Limited (in liquidation)", 12 February, 2000.
os
t

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22
 01/124C The Peregrine Debacle

EXHIBIT 5
EXCHANGE RATES AND STOCK MARKET MOVEMENTS OF

t
INDONESIA, THAILAND, SOUTH KOREA, AND HONG KONG
FROM MID-1997 TO JANUARY 1998

os
A. Exchange Rates40

1. Thai Baht to USD 2. Indonesian Rupiah to USD

60

rP
16000
14000
50
12000
40
10000
30 8000
6000
20
4000

yo
10 2000

0 0

97

97

97

97

97

97

98
97

97

97

97

97

97

97

97

98

7/

8/

9/

0/

1/

2/

1/
5/

6/

7/

8/

9/

0/

1/

2/

1/

/0

/0

/0

/1

/1

/1

/0
/0

/0

/0

/0

/0

/1

/1

/1

/0

01

01

01

01

01

01

01
01

01

01

01

01

01

01

01

01

op
3. South Korean Won to USD

2500

2000
tC

1500

1000

500

0
97

97

97

97

97

97

98
7/

8/

9/

0/

1/

2/

1/
/0

/0

/0

/1

/1

/1

/0
No 01

01

01

01

01

01

01

(cont'd next page)

Do

40
The Hong Kong government maintained a Hong Kong dollar - US dollar exchange rate peg, so that US$1=HK$7.7 to HK$7.8
throughout the period.

23

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 01/124C The Peregrine Debacle

EXHIBIT 5 (CONT'D)

t
B. Stock Market Movements

os
1. Thailand: Stock Exchange of Thailand Index 2. Indonesia: Jakarta Stock Exchange
Composite - Price Index

800 800

700 700

rP
600 600

500 500
400 400
300 300
200 200
100 100
0 0

yo
97

97

97

97

97

97

98

97

97

97

97

97

97

98
7/

8/

9/

0/

1/

2/

1/

7/

8/

9/

0/

1/

2/

1/
/0

/0

/0

/1

/1

/1

/0

/0

/0

/0

/1

/1

/1

/0
01

01

01

01

01

01

01

01

01

01

01

01

01

01
3. South Korea: Korea Stock Exchange 4. Hong Kong: Hang Seng Index
Composite - Price Index
op
900 18000
800 16000
700 14000
600 12000
500 10000
400 8000
tC

300 6000
200 4000
100 2000
0 0
97

97

97

97

97

97

98
97

97

97

97

97

97

98

7/

8/

9/

0/

1/

2/

1/
7/

8/

9/

0/

1/

2/

1/

/0

/0

/0

/1

/1

/1

/0
/0

/0

/0

/1

/1

/1

/0

01

01

01

01

01

01

01
01

01

01

01

01

01

01
No

Source: Datastream, CEIC Database.

Do

24

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 01/124C The Peregrine Debacle

EXHIBIT 6
SHARE PRICE OF PEREGRINE INVESTMENT HOLDINGS LIMITED (IN HK$)

t
os
20

18

16

rP
14

12

10

0
yo
op
97

97

97

97

97

97

97

97

98
5/

6/

7/

8/

9/

0/

1/

2/

1/
/0

/0

/0

/0

/0

/1

/1

/1

/0
01

01

01

01

01

01

01

01

01

Source: Datastream.
tC
No
Do

25

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Permissions@hbsp.harvard.edu or 617.783.7860