Hong Kong Stocks Fall to Two-Year Low on AIG Downgrade, Lehman

By Hanny Wan

Sept. 16 (Bloomberg) -- Hong Kong stocks fell, dragging the benchmark index to the lowest level in two years, after credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.

HSBC Holdings Plc, Europe's biggest bank, lost 3.2 percent as Lehman's Hong Kong units suspended their operations and the head of the city's monetary authority warned of a ``severe crisis.'' Cnooc Ltd., China's third-largest oil company, declined 8.5 percent after crude-oil prices dropped to a seven-month low.

Investors are ``aggressively moving cash to the safest places to be,'' said Adam Tejpaul, head of Asia investments at JPMorgan Chase & Co.'s private bank unit, which oversees more than $400 billion in global assets. ``It's not yet time to buy. You'll continue to see a bit of volatility in the coming days.''

The Hang Seng Index lost 943.81, or 4.9 percent, to 18,409.09 as of 2:59 p.m. local time, headed for its lowest close since Oct. 31, 2006. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, slid 6 percent to 9,374.97.

HSBC retreated 3.2 percent to HK$118.20. Sino Land Co., a real-estate developer, plunged 9.3 percent to HK$10.16, set for its lowest close since Jan. 9, 2006. China Shenhua Energy Co., the country's biggest coal producer, sank 12 percent to HK$19.18. Industrial & Commercial Bank of China Ltd., the nation's biggest bank by market value, lost 7.1 percent to HK$4.46.

Biggest Bankruptcy Filing

AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. The downgrades occurred after two people familiar with the situation said the company is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.

Lehman, the fourth-largest U.S. investment bank, became the latest victim of the subprime mortgage crisis after it was forced into the biggest bankruptcy filing in history.

Three Lehman units suspended operations in Hong Kong with immediate effect, it said in a statement. Operations have been halted, including trading on the city's securities and futures exchanges, at Lehman Brothers Asia Ltd., Lehman Brothers Securities Asia Ltd. and Lehman Brothers Futures Asia Ltd., an e- mailed statement said. Lehman Brothers Asset Management Ltd., ``will continue to operate on a business as usual basis.''

``This is a severe crisis,'' said Joseph Yam, chief executive of the Hong Kong Monetary Authority. ``There'll be a negative impact on the Hong Kong financial market for sure. We expect to see volatility in prices but there should be no structural problems.''

Oil Plummets

Cnooc lost 8.5 percent to HK$8.57. PetroChina Co., the nation's largest oil producer, retreated 6.6 percent to HK$8.03.

Crude oil futures plunged 5.4 percent to $95.71 a barrel in New York yesterday, the lowest settlement price since Feb. 15. The contract was recently at $92.42 in after-hours trading.

All stocks on the 43-member Hang Seng Index declined. September futures slipped 4.6 percent to 18,424.

The following stocks rose or fell. Stock symbols are in brackets after company names.

Chinese real-estate companies: Shimao Property Holdings Ltd. (813 HK), the Chinese developer controlled by billionaire Xu Rongmao, sank 61 cents, or 10 percent, to HK$5.30, the steepest slump since March 17. China Overseas Land & Investment Ltd. (688 HK), a developer controlled by China's construction ministry, lost 35 cents, or 3.8 percent, to HK$8.78.

Property prices in China grew at the slowest pace in 18 months, the nation's top economic planning agency said. Prices in 70 major cities across the nation rose by 5.3 percent in August from a year earlier, compared with 7 percent growth in July, the National Development and Reform Commission said.

Hanny Holdings Ltd. (275 HK), a computer-products maker, tumbled 4 Hong Kong cents, or 60 percent, to 2.7 cents, after a three-day suspension. The company will consolidate every 50 shares into one new share, and then offer stockholders four new shares for each consolidated share held, raising as much as HK$231.2 million ($34 million) for ``general working capital'' purposes, according to a stock exchange filing dated Sept. 12.

Mongolia Energy Corp. (276 HK), a minerals explorer, retreated 10 cents, or 2.3 percent, to HK$4.34, after climbing as much as 8.6 percent. The company agreed July 31 to take a 20 percent stake in a group tendering for the Ergel XII oil and gas exploration block in Mongolia. The group won the bid to explore the area, measuring 1.2 million hectares, in the East Govi Basin near the border with China, the Hong Kong-based company said Sept. 12.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net.