HONG KONG MAY TIGHTEN EXPORT CREDIT CHECKS

HONG KONG MAY TIGHTEN EXPORT CREDIT CHECKS

Hong Kong's export-credit agency is threatening to tighten scrutiny of credit applicants, as yet another major local manufacturer takes a beating from weak U.S. toy sales.

The Hong Kong Export Credit Corp. warned Monday it will scrutinize the record of U.S. and other buyers much more closely before providing cover, as a result of the downfall of Worlds of Wonder and poor financial showings at most other major U.S. toy companies.We do not expect the high-priced electronic products will be selling as well as they did previously, T.H. Barma, the credit company's commissioner, told The Journal of Commerce. The market has shrunk very considerably.

While performance alone is not the answer, it is one of the aspects we must take account of in our overall assessment of a buyer or industry, Mr. Barma said.

Applied Electronics Ltd., a big supplier of electronic and educational toys and games to U.S. companies, is the latest to show a loss of HK$17 million (US$2 million) for the six months through last Dec. 31. The loss follows a HK$15 million profit in the corresponding period of 1986.

Applied Electronics was a major supplier to Worlds of Wonder Inc. and is making provision for losses of nearly HK$30 million from that company.

Worlds of Wonder, of Hawthorne, Calif., is currently operating under Chapter 11 bankruptcy protection in the wake of collapsed sales.

The downturn in the U.S. market has hammered several Hong Kong companies. However, Applied Electronics had already begun cutting operations and was moving to diversify before the crunch came.

The company closed its doll and plastic toys divisions and shifted into production of consumer electronics such as calculators.

This diversification will help reduce costs and better position the group for new business, Managing Director Raymond Hung said.

The electronic toy market will remain depressed for a long time, he said.

Mr. Barma of the export credit company added: If we see trends indicating that product lines may be failing, those are danger signs. And there are indications that the high-tech and electronic toy line is running its course.

The credit entity - established by the colony's government but required to operate incommercial markets - learned an expensive lesson from Worlds of Wonder, Mr. Barma acknowledged.

It recently paid HK$22.5 million on a record HK$25 million claim from Wong's Industrial Holdings Ltd., another Worlds of Wonder supplier.

I think companies are getting the message. We are getting quite a number of additional enquiries from well-established toy exporters that once felt they could carry the risks themselves. That indicates they are being more cautious in their approach, Mr. Barma said.