TMB to try again

AFTER the collapse of its US$300-million global offering last year, the Thai Military Bank is looking forward to a second attempt.

But this time it may focus on raising fresh capital among local investors, who responded particularly well to the Bt3-billion tranche when it was offered domestically. Unlike the foreign tranche, the domestic issue was over-subscribed by Bt6 billion. But the deal had to be scrapped altogether due to its failure overseas.

It was quite unfortunate that TMB missed the window of opportunity for its foreign-tranche offering. Then it had aimed to raise US$300 million from global investors. US Securities and Exchange Commission (SEC) regulations stipulate that once a company has made an offering, it has to meet its target, otherwise it has to cancel the deal.

Soros Fund withdrew from subscribing to TMB's global offering at the last minute. It was supposed to pay US$40 million and the shortfall could not be filled by CS First Boston, which was then TMB's financial adviser. Then again even if CS First Boston dug US$40 million out of its own pocket to underwrite the deal, it would have violated a regulation, under which the investment firm is not allowed to invest in any company more than 5 per cent of its capital fund.

Without the full subscription, the United States SEC could not allow TMB to close the deal, hence the collapse of the bank's recapitalisation plan.

Bank of Ayudhya (BAY) also suffered a setback after a group of Taiwanese investors walked away from the deal. The failure of both banks to recapitalise has undermined confidence in the Thai banking system.

But the banking system did survive 1999. With the improving prospects of an economic recovery and the decrease in non-performing loans, Thai banks are about to stage a recovery. The banking sector and the telecom sector are expected to lead the trading in the stock market this year.

Now TMB is picking up the pieces and trying to patch up its work. It has selected Salomon Smith Barney as its financial adviser, replacing CS First Boston. Salomon Smith Barney will advise on TMB's foreign tranche offering, while JF Thanakom Securities Ltd and Merrill Lynch Phatra Securities will be responsible for the domestic offering.

TMB's small board has also recently approved a Bt30-billion recapitalisation plan. Half of this amount will be raised among the private investors. The other half will come from Tier-1 capital support of the government-sponsored August 14th Banking Restructuring Programme.

Fitch IBCA, the credit rating agency, recently issued a comment on the Thai banking sector, raising a concern over BAY's and TMB's vulnerability to substantial increases in the level of provisioning to absorb loan losses. It said both banks' provisioning were significantly below their peer's rate of provision (10 per cent of gross loans, compared with 20 per cent).

"On a comparative basis, using a similar level of expected loan losses used by other major Thai banks, BAY and TMB may need to make additional provisions above their current estimates of Bt32 billion and Bt25 billion respectively," Fitch IBCA said. "As a consequence, both banks would each need to raise approximately Bt30 billion to restore capital adequacy."

The financial authorities would like to see TMB complete its recapitalisation plan in the first quarter of this year so that the banking sector as a whole may quickly put its woes behind. It took the banking sector 30 years to accumulate its capital to Bt700 billion. The financial crisis that started in 1997 wiped it out. Thai banks have now raised Bt700 billion to replace the lost capital.

TMB is trading at Bt14-Bt15 in the stock market. If all goes well with this recapitalisation round, it is likely to be able to pull off a surprise and a turnaround.

BY THANONG KHANTHONG