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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

COVER STORY - SPECIAL REPORT

Grounding a High-Flyer
Peregrine crashes in a blaze of bad debt

By Alejandro Reyes and Assif Shameen


IT WAS A GRUELING week for Philip Tose. The 52-year-old banker had cut a deal to save his baby, Peregrine Investments Holdings in Hong Kong, but it was coming unravelled. First, the supposed white knight, insurance giant Zurich Group, looked at plummeting Asian currencies and wanted to renegotiate. After two days of talks, Zurich on Jan. 8 agreed to a $200 million injection into Peregrine, the largest Asia-based investment house outside Japan. Tose and partner Francis Leung Pak-to informed Hong Kong regulatory authorities of the arrangement.

But there was a hitch: The money would not be paid until Jan. 13, a Tuesday, and to survive until then Tose needed $60 million in short-term credit. Here, the story becomes one of near-misses. Tose was relying on a major creditor, First Chicago, for the funds, but in the pre-dawn hours of Jan. 9 he got a call from Chicago telling him that the credit line would not be extended. That left him shattered -- and left the once high-flying Peregrine, which had about 700 Hong Kong staff, grounded and unable to meet payments due that day. There ensued frantic efforts to find funding. They failed. On Jan. 12, Peregrine announced it would be in the hands of court-appointed liquidators by the next day.

In some ways, Peregrine's roller-coaster end was an apt climax to the brief history of one of Asia's most ambitious, audacious financial institutions. Tose was sent to Hong Kong 26 years ago to open an office for a British firm. Early on, he developed an ability to forge relationships with a number of emerging tycoons. One was property magnate Li Ka-shing, who later became a key Peregrine patron. In 1988, Tose, Leung and Francis Yuen Tin-fan set up Peregrine.

Tose and Leung have stuck together, Leung serving as the firm's managing director and Tose as chairman. Regarded as brash by critics and innovative by admirers, the pair molded Peregrine into a regional investment powerhouse with successful brokerage, corporate finance and fixed-income departments. Meanwhile, Tose and his Indonesian-Chinese wife Jennifer became top-drawer members of Hong Kong's charity ball circuit.

But in the end, the same brashness that epitomized Peregrine's business style may have been its downfall. It made ambitious direct investments in emerging markets such as China, Vietnam and Myanmar before others were willing to take the chance. It was a leading underwriter in bringing risky but ultimately lucrative "red chips," the Hong Kong arms of Chinese state enterprises, to the market. And in recent years, Peregrine attempted to build an Asian bond business almost from scratch.

To accomplish this last gambit, Peregrine paid dearly to poach Asia's best and brightest. Among the recruits from Lehman Brothers was Andre Lee, a French Canadian-Korean, now in his 30s. With Lee in charge, Peregrine's fixed-income division within 24 months grew to generate half of the company's total earnings. Peregrine became the biggest issuer of Asian junk bonds, a market Lee created.

But timing was poor. A $265 million promissary note in Indonesia became a prime cause of Peregrine's fall. The dollar-denominated notes for Steady Safe, a taxi and bus operator in Jakarta, were undersubscribed, leaving Peregrine holding most of them. The notes were issued shortly after the baht devalued at mid-year, when the rupiah was at 2,500 to the dollar. But as the Indonesian currency collapsed, stretching above 10,000 on Jan. 8, Steady Safe became shaky -- and the notes were utterly forsaken. Could Tose have avoided the problem? He defends the Steady Safe deal, saying that early in the financial crisis, Indonesia appeared to be a leading candidate for swift recovery.

But Steady Safe was not the only reason for Peregrine's demise. With asset prices collapsing around Asia, the firm's direct investment arm took several heavy hits. And deals in Myanmar and Vietnam went sour. "When you come to work here, you know this is a high-risk but high-reward outfit," said one Hong Kong-based executive clearing his desk on Jan. 13. "Peregrine has had that reputation." Neither Tose nor Leung is likely to disappear. Tose has a personal fortune estimated at $120 million and plenty of strong connections. He intends to be involved with the liquidation of Peregrine assets. Leung is probably even better-positioned in post-handover Hong Kong than Tose. He could resurface quickly and take advantage of personal relations with top Chinese officials.

Though Peregrine will undoubtedly not be the last financial institution in Asia hurt by the region's economic crisis, it is, in important ways, unique. For one thing, the company was horribly overextended. "I won't go so far as to say there won't be others like Peregrine," says an investment banker in Singapore, "but the firm was headed for trouble even before the crisis." Even so, this is clearly not a good season for high-flyers.


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