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Bear chews up takeover king


Thanong Khanthong traces the rise and fall of the Finance One empire.

TAKEOVER king Pin Chakkaphak has led the once-mighty Finance One empire to its final chapter. The empire has finally become too exhausted to even raise a finger in its defence.

By seeking a merger between Fin-One (1995 assets: Bt100 billion) and the Thai Danu Bank (1995 assets: Bt120 billion), Pin is desperately seeking a rescuer for his empire, which has been engulfed by a mounting liquidity crisis. A merger if not an outright bail-out has become the only way through.

The Thai Danu Bank/Fin-One merger will create a new banking institution, which will retain the name Thai Danu Bank, with combined assets of more than Bt200 billion. The bank's ranking will improve from 12th to 8th.

For Pin personally, it signals his abdication from the unofficial title of Thailand's takeover king.

From now, the name Fin-One, which has reigned supreme by building an empire through aggressive mergers and acquisitions over the past decade, will be erased from the face of the Thai financial industry.

''It is shocking to realise that the name Finance One will no longer be there," said the managing director of a top-ten securities company.

The Fin-One bail-out is the dramatic end of an era, and has also come to represent the Thai bubble economy. It raises uncertainties over the future of Fin-One's subsidiaries, which include Thana One Finance & Securities Plc, Securities One Plc, First Asia Securities Plc, JF Thanakom Securities Plc, Dynasty Ceramics and One Holding Plc.

Taking a broader perspective, the demise of Finance One triggers into action the painful process of consolidation in the finance industry, which, in the next year or two, will reduce the weak, inefficient players by more than half, from the present total of 91.

Over the past couple of weeks, Pin has been scrambling for fresh liquidity to keep Fin-One afloat. Since Fin-One has tied its fortune to the Thai capital market, it is no surprise that it has lost its entire fortune in the present financial meltdown.

The hard landing of the Thai economy in 1996 and this year, the free-fall of the stock market over the past three years, the attack on the Thai baht earlier this year and the liquidity crunch which at one point brought interfinance rates to 30-40 per cent have combined to leave Fin-One punch-drunk.

How could Fin-One, which is so deeply entrenched in the capital market, withstand the heavy blows as the SET index tumbled from 1,700 to 700?

Its loan portfolio has gone severely sour; its investment portfolio has also melted away with the collapse of the capital market. The biggest question is: How big are Fin-One's total liabilities?

For this reason, Pornsanong Tuchinda, the president of the Thai Danu Bank, was reported to have been reluctant when first approached to rescue Fin-One. He did not know how much of Fin-One's load of debt Thai Danu Bank would have to absorb.

Pornsanong, who always had a very high regard for Pin, was the one who initiated a move to link Thai Danu Bank with Fin-One early last year. Yet the marriage has not gone smoothly due to the finance authorities' objections to the cross-shareholding.

Nor had the major shareholders of Fin-One been informed by Pin about the company's actual financial status. The major shareholders of Fin-One, who include Dr Thanat Khoman, the Srivikorns, Chumpol Pornprapha and others on the board, had been acting mostly as a rubber stamp.

More often than not they went into board meetings without knowing the agenda because they were not given it in advance. In the firm's glory days, no shareholder dared questioned Pin because he seemed so successful at snapping up companies and adding capital gains to Fin-One's books. As long as the Fin-One stock kept rising, everybody was happy.

The situation has been completely different of late. Pin began to sense that something was going wrong with the empire in September when the money was slow at coming in compared with the outflow. Some members started to question Pin and his lieutenants over their investment plans, which needed to be financed by more borrowed money.

One person familiar with Fin-One said the shareholders demanded to be fully informed about Fin-One's debt burden in return for their fresh funds. Also important was Pin's reading of the Thai economy. Would it turn around in 10 months? 15 months?

''The shareholders said if they pumped money into Fin-One only to keep the company hanging in there for a further three months or so, it would be money wasted if the economy keeps deteriorating," the source said.

Pin was also reported to have sought help from Charoen Sirivadhanabhakdi, the liquor tycoon. ''If you want to know which Thai company is in trouble, all you need to do is sleep at Charoen's gate. They're all coming to see him," said a representative of a US investment bank.

A finance executive overheard a story that Charoen was asked to buy any assets of Fin-One to give it some liquidity, or that Fin-One would issue debts to Charoen for Bt5 billion. The deal went nowhere.

For sure, the tycoon is not going to throw his money around. He is planning to spend Bt5 billion this year to have the New Imperial Hotel renovated. The economic slump has also given his business some troubles to attend to. Besides, Charoen's low-profile style would hardly go along with the more aggressive Fin-One culture.

The Charoen Pokphand Group demonstrated its business acumen more than two years ago when it decided to pull out of Fin-One by selling off their 7-8 per cent stake. A member of the group was heard saying that CP realised that Fin-One had arrived at the peak of its maturity, so growth prospects for earnings would not be so exciting. Several people subsequently speculated that CP might have sensed something was going wrong with Fin-One.

Last week the board of Fin-One was thrown into a helpless situation. One source described it as similar to the time when Germany was about to be conquered in World War II. All the top generals were just sitting there. They could not do anything, just wait to offer a surrender.

If the Stock Exchange of Thailand had been trading at the 1200 level, Fin-One would not have fallen to its knees. By itself, the company should have withstood the business downturn, but the burden of carrying its subsidiaries finally proved to be too heavy.

''You could say the subsidiaries were dragging Fin-One down, sucking all its blood away," said a person familiar with the Fin-One affair.

The problem now is how the new Thai Danu Finance One bank will approach Fin-One's subsidiaries. If the bank wants to spin them off, who will want to buy them and at what price?

One Holding, which is cross-held with Fin-One, is saddled with huge debts beyond salvage. Dynasty Ceramics is trading at Bt2 to Bt3 a share.

Pin's larger-than-life image has never been good. Perhaps this is part of the Thai culture, with all the jealousy around the place. At one point, Pin was worth more than Bt3 billion.

Many Thais do not like high-profile people. Pin has been dubbed the financial wizard or takeover king, an image that sat well.

On one occasion, when Pin tried to raise money for Fin-One, he received a negative response from the foreign investors, who were not comfortable with Fin-One's image back home. They lent Fin-One money anyway, but at a higher cost.

Yet both Pin and Termchai Pinyaratn, Pin's right-hand man, should be commended for their audacity. They raised Fin-One from an obscure finance company into Thailand's largest financial empire, at one time even setting their sights on eclipsing the mighty Bangkok Bank.

Yet in the end, what they built turned out to be a hot-air balloon, which developed a puncture. ''As long as hot air was pumped into the balloon, it would continue to float about, but when the hot air ran out, the balloon just withered to the ground," said one commentator.

The hot-air analogy is reminiscent of Pin's style. Pin is passionate about leveraged financing.

''He built his empire on the simple mathematics of asset expansion. He bought a piece of a financial asset, for example for Bt100, and tried to boost it to Bt400. This Bt400 was then pledged at a financial institution for Bt200, which in turn was used to buy another asset, which would be boosted to Bt800, and so on," the commentator said.

This building of pyramids is sustainable in so far as the capital market keeps rising, but the capital market is not a one-way street. In this case, it turned out to be a long one-way street down the slope.

Ironically, Pin always had an ambition to own a commercial bank. He tried, in vain, to acquire the Bank of Asia. The investment there is a loss now.

Later he was invited to make a friendly acquisition of the Thai Danu Bank. People in the financial industry told Pornsanong at Thai Danu Bank that he would be outwitted by Pin and his lieutenants if he was not careful enough. This no doubt gave Pornsanong some uncomfortable nights.

Ultimately it is Thai Danu Bank who takes over Fin-One not the other way around. On second thoughts, is it such a good deal?



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