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Crunch for Bangkok Bank

 

BANGKOK Bank will come under tremendous pressure to recapitalise soon if it fails to strike a debt-restructuring deal with Thai Petrochemical Industry Plc, to which the bank has a huge exposure of US$370 million (Bt14.6 billion) in direct loans, plus Bt40 billion in off-balance sheet guarantees.

People familiar with the discussions say relations between TPI and Bangkok Bank have hit rock bottom following increasingly acrimonious debt-restructuring negotiations between the country's largest debtor and its local and international creditor banks.

One of the lawyers involved said: "If Bangkok Bank cannot bring this deal to a successful conclusion, it will face pressure to recapitalise over the next two to three months. And it looks as if Prachai Leopairattana (the chief executive of TPI) is going after Bangkok Bank in a rather vengeful way."

Indeed, the stalemate in the TPI debt-restructuring talks has eroded investors' confidence in the prospects for Thailand's economic recovery and has also dampened sentiment in the Thai stock market. Late last year, most investors believed a successful TPI deal would bolster confidence in the Thai legal system and blaze the trail for other debt-restructuring agreements.

"The TPI case is very sensitive. It affects confidence in the entire system," said a banking analyst at a local securities company.

Shares of Bangkok Bank and other bank stocks have been falling sharply since the beginning of the year as sentiment soured on the banking sector and the sluggish progress of corporate-debt restructuring. Bangkok Bank closed at a high of Bt66 on Jan 20 and has been falling steadily ever since. Yesterday the bank was trading at about Bt50 a share.

Apart from the $370 million in direct loans to TPI, Vachiraphand Phromprasert, a financial adviser to TPI, said last year that the bank had also agreed to guarantee Bt40-billion worth of TPI's stand-by letters of credit.

If TPI fails to honour the stand-by LCs, the burden to pay on them will fall on the shoulders of Bangkok Bank.

As of last December, Bangkok Bank had reserved Bt166.75 billion in provisions against loan losses, or 83.5 per cent of its expected total requirement for this year. Similarly, it had succeeded in restructuring Bt102.51 billion of corporate debt. Its non-performing loans stood at Bt393 billion, or 30 per cent of total loans.

Over the weekend, it was reported that the lawyers representing the creditor banks had pressed Prachai into surrendering his control over TPI, so that the creditor banks could appoint an independent planner and take over the company. TPI owes 148 creditors a combined US$3.5 billion.

"It looks as if the clash between the creditor banks and the company has escalated into a personal war," the lawyer said.

Both sides are now locked in a bitter court battle over the control of TPI. The creditor banks are seeking to prove to the Central Bankruptcy Court that TPI is insolvent so that they can lead the company into a course of reorganisation or rehabilitation. Prachai has altered his tactics by now arguing that TPI is not insolvent and that the creditor banks should sue him under the civil code - not under bankruptcy or foreclosure laws - if they want to get their money back.

So far, the legal fees racked up by both sides are estimated to have skyrocketed to Bt1 billion, said the lawyer.

Bank analysts agreed that Bangkok Bank may be forced to tap the capital markets again if it is not able to reclassify its TPI assets back to the performing-loan category. "For the strategy of the bank is to work on debt restructuring to fulfil this year's provisions for loan losses without having to resort to a capital increase," one analyst said.

Adisak Kammaal of Philippe Securities (Thailand) Ltd said failure to resolve the debt-restructuring case has clouded the earnings outlook of the banking industry, resulting in prices falling for bank stocks, including those of Bangkok Bank.

"The market's expectation that banks will soon be posting profits has been postponed," he said.

BY THANONG KHANTHONG and

JIWAMOL KANOKSILP

 

 

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