BUSINESSWEEK ONLINE : OCTOBER 30, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY A Liquidity Crisis Is Pushing Asia to the Wall A $27 billion week. That's the amount of debt that drove Japanese insurer Chiyoda Mutual Life, into bankruptcy on one grim day in mid-October. No wonder bankruptcies are at an all-time high in Japan. And no wonder investors are starting to worry that a global liquidity crunch is developing. The signs are there in Asia, where bankers are wary of any new corporate lending. Europe is faring better, but spot shortages of capital are showing up there, too, especially in the telco and tech sectors. (Hot tip: Don't start a dot-com in Sweden.) Investors who figured brisk global growth would keep the party going while America cooled may be in for a rude shock. Says Standard & Poor's/DRI chief international economist Nariman Behravesh: ''If there is another 20% drop in U.S. stocks and oil prices go over $40, we could be in for bigger trouble.'' The big worry is Asia. One good indicator: The gap between Asian corporate and government bond yields and U.S. Treasuries has nearly doubled since January. That means investors demand much higher premiums for what they see as higher risk. Among the signs: A slowdown in essential corporate reforms in Southeast Asia, fears of a new wave of bankruptcies in Japan, and a perception that Korea's fast growth is masking a lot of problems. So money is extremely tight. In Japan, bank lending has declined for 33 months in a row. Outstanding loans in Asia contracted by $6.6 billion in the first quarter of the year, the last time the Bank of International Settlements counted, and it is doubtful they've improved much since. Big Tokyo banks aren't lending at home, either, and their balance sheets could worsen if they cave in to pressure to forgive debts. Shinsei Bank President Masamoto Yashiro says if he cuts deadbeat borrowers any more slack, his bank's $120 billion in assets ''would be wiped out.'' Shinsei has already pulled the plug on Sogo, a big department store chain that went bankrupt. Banks in South Korea have about $100 billion in non-performing loans, roughly 25% of total lending, while in Thailand 30% of loans are bad. PURE AGONY. For one euphoric stretch earlier this year, the equity markets provided fresh capital to Asian companies. Before March, anyone in Seoul with a startup idea ''could raise $1 million or $2 million extremely easily,'' says Locus Corp. CEO James Kim, who heads a startup group in Seoul. Now it's pure agony. This year's 60% dive in Seoul's high-tech Kosdaq market has sent venture capitalists scurrying. Europe is better off. Nonperforming loans are still relatively low. And companies are in much sounder shape than in Asia. Overall lending to euro zone companies should grow by almost 9% in the third quarter. ''You can't describe this as a credit crunch,'' says Deutsche Bank economist Carlo Monticelli. But that doesn't include Europe's huge telecom sector, which has taken on big debts to fund a $260 billion investment spree, especially in wireless technology. Europe's telecom companies must pay bondholders about 120 basis points over government paper, reflecting investor fears, and credit agencies have cut ratings of France Telecom and Deutsche Telekom. The stock markets aren't filling the gap. A slew of tech initial public offerings have recently been withdrawn. The Nemax index of Germany's Neuer Markt, the favored exchange for European tech companies, has lost more than half its value since March. Europe's junk bond market also has deteriorated, leaving Deutsche Bank, Dresdner Bank, and others holding high-yielding bonds. In Scandinavia, startup money is even drying up in the red-hot wireless telecom sector. On Oct. 15, Swedish Web portal Ms Freckles, which has mobile Net links and was once well-funded, filed for Chapter 11. ''It would have never happened four months ago,'' says Per Mosseby, founder of Sweden's Melody, a creator of mobile Net products. Four months ago? That seems like another era. By Brian Bremner in Tokyo and David Fairlamb in Frankfurt, with bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Financing Squeeze CHART: Triple Trouble CHART: Problem Loans Are Increasing A Liquidity Crisis Is Pushing Asia to the Wall CHART: Risky Asia INTERACT E-Mail to Business Week Online

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