CPB dumps 'antiquated' ways
April 23, 2001
A RADICAL restructuring is taking place at the Crown Property Bureau (CPB), which has abandoned its "antiquated" ways of doing business in favour of a new management to achieve a "fair return" on its vast portfolio and real estate holdings.
Chirayu Issarangkun Na Ayutthaya, the director of the CPB, said the bureau needed to make an adjustment to cope with the real world.
In the past the CPB, which manages the assets of the Royal Household, had a very peculiar approach to doing business: it never sold any of the shares it was invited to buy in companies, denying it the chance to realise a profit.
The economic crisis over the past four years has enormously damaged the investment portfolio of the CPB because it has failed to offload shares and cut its losses. The reason was that as a prestigious institution, there would be an amount of sensitivity required in doing so. Now this practice will change.
"We're now adopting a new management system to get a fair return for our investment," said Chirayu. "In the past, we took part in joint investments. We were reluctant to sell our investments. The money was kept idle in the banks. This antiquated way of doing business is not producing a fair return for the CPB."
Advising Chirayu on the modernisation of the CPB's management system are Yos Euarchukiati, Vichit Suraphongchai, and MR Dissanada Disakul. MR Pridiyathorn Devakula and Sirin Nimmanahaeminda have also recently come aboard. These individuals are capable veterans, who are willing to devote their time for the CPB in spite of their busy daily schedules.
The structure of the CPB has already been changed to streamline its operations. Under the restructuring plan, the first since King Rama VI, the CPB will continue to hold its direct stakes of 13.5 per cent in Siam Commercial Bank, 30 per cent in Siam Cement Group and 25 per cent in Deves Insurance Plc. They represent the core business interests of the bureau.
The rest of its interests will be transferred into two holding companies: CPB Equity Co Ltd and CPB Property Co Ltd. This will ensure flexibility and a quick decision-making process.
Chirayu said all of the equity holdings of the CPB have been transferred to CPB Equity Co, which is managing an equity portfolio of about Bt20 billion. About 70-80 per cent of the CPB Equity's portfolio is invested in shares listed on the stock market.
It is not publicly known what the total worth of the CPB's portfolio was at stock market's peak, when the index was about 1,600. But today, with the SET index at around 300 points, it is worth Bt20 billion.
Chiraya will chair CPB Equity so that he can link it with the CPB (see table for the names of other directors).
"The economic crisis in 1997 has enormously affected the bureau's business. So, we have tried to change the business' culture and asset management policy in line with the new economic environment," Chirayu said.
Yos, who was present during the interview with The Nation, said CPB Equity Co Ltd has three functions. The first is to manage the short-term portfolio, including the treasury instruments, cash, and savings.
The second objective is to manage the equity portfolio including shares in the listed companies and non-listed companies. The sale or purchase of stocks will be made based on reasonable commercial value.
The last function of CPB Equity will be to make long term investments through joint ventures or through acquisitions of businesses with a long-term potential.
To ensure a strong cash flow, CPB Equity is capitalised at Bt7.51 billion.
CPB Property, will become a real estate arm of the CPB. Again, Chiraya will chair this company, while Yos will act as executive chairman. A management team is being formed to run the company.
CPB Property will bring all the real estate interests of the CPB under one roof. CPB has a huge land bank, with tens of thousands of land title deeds, which are rented out very cheaply to government agencies, companies and individuals.
The problem is that most people assume that the renting rates of the CPB's real estate holdings should be cheap, or below the market rates.
"This antiquated way of running the business has created a distortion in the real estate market," Chirayu said. As a result, the CPB has never received what it considers a fair return from its real estate holdings.
From now on, CPB property will deal with the tenants in a straightforward way. After the rents have expired, new deals will be struck. The rates should give the CPB a fair return, albeit still below the market value.
Before tenants, who no longer wanted to extend their lease contracts, were allowed to sell their contracts to a third party. From now on, this fait accompli practice won't be allowed. The CPB Property will take the contracts back and negotiate them with other parties by itself.
With the current real estate slump, it will take several more years before the CPB Property can really manage its holdings to their full potential.