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SCMP Reporter

Two Hong Kong subsidiaries of collapsed Guangdong International Trust and Investment Corp (Gitic) have combined liabilities of about $6.6 billion, according to newly-appointed provisional liquidator KPMG Peat Marwick.

 The companies - Guangdong International Trust and Investment Corp Hong Kong (Holdings) (Gitic HK) and Guangxin Enterprises - were put under voluntary liquidation yesterday.

 The liquidation came after Gitic - one of the mainland's largest investment firms - was shut down last Tuesday by the central People's Bank of China, with reported outstanding liabilities of approximately US$2.4 billion.

 About 1.5 billion yuan (HK$1.39 billion) in futures trading losses overseas precipitated Gitic's collapse, Agence France-Presse quoted a manager with the firm as saying.

 An unnamed banking official said the futures losses pushed Gitic's losses up to about four billion yuan.

 KPMG Peat Marwick partner Gabriel Tam Chi-kok said Gitic HK and Guangxin would be wound up voluntarily under the Company Ordinance section 228A, after a directors meeting which found the companies were unable to repay debts.

 'Our first task is to establish their financial positions, or asset and liabilities positions,' he said.

 Mr Tam said Guangxin had liabilities of about HK$3.8 billion and Gitic HK of $2.8 billion based on preliminary figures.

 Both excluded contingent guarantees.

 The first credit meeting will be held within 28 days.

 Mr Tam said it would be too early to comment on how Gitic HK's liquidation would affect its Hong Kong-listed arm, Gitic Enterprises, which has been suspended from trading since last Wednesday.

 In an announcement to the Stock Exchange of Hong Kong, Gitic Enterprises said it would be affected 'to a certain extent' but did not elaborate.

 Gitic HK, engaged in project financing, mortgage and trade financing as well as property investment in Hong Kong, indirectly holds a 57 per cent stake of Gitic Enterprises which owns a shopping centre in Guangzhou and a marble trading and manufacturing business.

 Dresdner Kleinwort Benson said Gitic's closure proved that the reform of mainland financial institutions remained on Premier Zhu Rongji's agenda, despite his urgent task of combatting the economic slowdown.

 However, foreign banks which had lent to Gitic and other international trust and investment companies (Itics) would suffer losses and new lending could slow down.

 Standard & Poor's yesterday placed the ratings of three Itics in Fujian, Shanghai and Tianjin on credit watch with negative implications, as well as the corporate credit rating and senior unsecured debt rating of Guangdong Enterprises.

 The agency said it was 'unclear' whether the local governments would remain the primary source of support to the Itics in the wake of Gitic's demise which it described as possibly a 'political crackdown on an institution which had sometimes challenged regulatory policies'.

 It said political uncertainty arising from the closure might erode confidence in effective government support of these institutions and lead to increased refinancing risk.



Liquidators find $6.6b in liabilities at two SAR-based Gitic subsidiaries