Fin-One saga deepens financial wounds
Thanong Khanthong and Vatchara Charoonsantikul detail the consequences of the last-ditch effort to save Finance One.
Pin Chakkaphak, the embattled president of Finance One Plc, narrowly escaped a catastrophe yesterday with the Bank of Thailand's 11th hour decision to bail him out after Thai Danu Bank scrapped the merger deal.
After almost three months of tactical delays in an effort to save his teetering empire, Pin yesterday realised his worst nightmare. Thai Danu Bank officially declined to merge with his debt-ridden Fin-One, effectively ending hopes of salvaging his flagship company whose fortunes had dissipated as the Thai economy went into meltdown.
Fearful of the adverse consequences of the failed deal on the fragile finance sector, banking regulators rushed to Pin's rescue in the form of a Bangkok Bank of Commerce-style bail-out. The Fin-One's board of directors met late in the afternoon to dutifully follow the central bank's orders which would save the company from disaster.
Earlier, there was a report that Fin-One, during negotiations with Thai Danu, had indicated it wanted regulators to bail it out a la BBC. It has negotiated for the Fund for Rehabilitation of Financial Institutions to buy its bad debts at a discount at 70 per cent of the total value. But the Fund would like to buy at a 50 per cent discount.
Rescuing Fin-One would have been much easier if the SET index had been hovering at around 650-700, since most of its assets were tied to the fortunes of the stock market. For instance, Fin-One's 21 per cent stake in Securities One Plc has dissolved from Bt7.74 billion in July 1996 to Bt2.73 billion in January, and to Bt550.71 million as of yesterday.
Under the rescue plan, Fin-One will be required to raise Bt8.28 billion in fresh capital by offering a rights issue at two new shares for every one held at Bt7.50 apiece. This offer is a discount from Fin-One's book value.
Pin and his family will be obliged to participate in the capital increase because the damage at Fin-One is directly or indirectly tied to them. All the other shareholders of Fin-One are expected to jump ship because they have no interest in flogging a dead horse.
There has also been a suggestion that foreign creditors, who lent Fin-One more than Bt10 billion as of last year, can convert their loans into equity. Yet the creditors' position is that Pin and his family would have to put in the money first to give the company some breathing space.
Fin-One yesterday announced it had posted a loss of Bt3.75 billion in the first quarter of 1997, compared to a net profit of Bt1.5 billion last year. With total assets of more than Bt100 billion, Fin-One is sitting on loans of Bt65 billion, most of which have gone sour.
Any stocks from the rights issue left unsubscribed by Fin-One shareholders will be totally absorbed by the Fund. The Fund has already poured in more than Bt100 billion to bail out BBC. It will also have to spend another Bt4 billion to subscribe to the capital increase of 10 finance companies blacklisted earlier.
The rescue plan will not entail Fin-One to reduce its capital to write off the bad debts. However, Fin-One has agreed to partially write off its bad debts by shrinking its net worth of Bt14 billion as of the end of December 1996 to Bt5,498,900,000.
The Bt8.28 billion in fresh capital is expected to keep Fin-One afloat because theoretically the company will be able to leverage its loans by another 16 times.
The banking authorities are scheduled to announce a package of measures on Monday aimed at restoring calm in the troubled finance sector, which is bracing for another crisis of confidence.
Jaroong Nookhwun, the assistant central bank governor, hinted at the possibility of the regulators' resorting to Article 57 of the finance company and credit foncier law to restore confidence in Fin-One. This law allows the authorities to step in to order the company to reduce or raise fresh capital as they deem fit.
The board of Thai Danu met yesterday morning to deliberate the merger proposal, but it had a clear answer from the outset. Khan Prachuabmoh, a bank director, emerged to announce that they had decided to scrap the merger plan, confirming earlier rumours that Thai Danu had walked away from the deal.
''We both agreed to cancel and terminate the merger plan in accordance with the memorandum of understanding signed on March 14," he said. Later in the afternoon Thai Danu issued a statement to outline the complexities, in legal and tax terms, of the planned merger.
Thai Danu did not spell out the differences in pricing, the underlying reason that had led to a collapse of the merger talks. A broker said Fin-One offered to sell its 414 million stocks to Thai Danu at Bt5 apiece a price the bank considered too high given Fin-One's huge bad debts.
There had been a report that Thai Danu would like Fin-One to reduce its capital to write off the bad debts and undergo a fresh recapitalisation, a proposal Pin could not accept.
Fin-One was suspended from public trading in early March when it sought a rescue from Thai Danu. Its last quote was Bt23.75 compared to Fin-One's latest grey market price at Bt6. Based on the grey market value, Fin-One is worth about Bt2.48 billion, against more than Bt80 billion at the height of the company's glory years.
The board of the Stock Exchange of Thailand will meet on Monday to determine how Fin-One's stocks will be allowed to resume trading. Singh Tangtaswas, the SET president, said there was a possibility Fin-One might be subject to a 10 per cent ceiling-floor regulation on day one when the exchange decides to lift its SP sign.
This regulatory intervention is designed to calm nervous sentiment in the stock market because there has been widespread talk in the market that Fin-One would go down to Bt2 or Bt3 baht on the first day of its trading. The collapse in Fin-One's stock price could drag down the entire finance sector and the stock market at a time when it is already reeling.
The collapse of the Thai Danu/Fin-One merger will have far-reaching implications on the ''Big Bang" reform of the finance sector, which is facing diminishing returns and growing anxiety from the regulators over stability.
Banking regulators may also come under political pressure over their decision to bail out Fin-One instead of letting it go under. The Fund, which gets the money to save Fin-One from contributions from financial institutions, has also borrowed money substantially from the money market to keep troubled finance companies afloat.
Sources say the Fund has also borrowed Bt120 billion from the Bank of Thailand in high powered money to cushion the sector. This amount has more than dwarfed the budget cuts the BOT would like the Chavalit administration to make in order to maintain fiscal discipline.
So who says the public are not footing the bill for the failed Bangkok Bank of Commerce and the troubled finance companies, which are ripping the financial system apart through years of mismanagement, over-confidence and -- in some cases -- fraud.