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Sellout not the end for tycoon


In late 1996, Nongluck Phatraprasit, the matriarch of the Phatraprasit family whose vast interests had spread into banking, finance and securities, real estate, and liquor, decided to spend almost Bt10 billion to raise the family's stake in Bank of Asia to more than 50 per cent.

The move was part of Nongluck's aim to strengthen her family's control of the medium-scale bank. Her huge investment was also intended to pre-empt any future feuds with rival shareholders, principally the Euarchukiati family and the Finance One-led consortium.

But Nongluck's triumph was short-lived. After four months of tedious negotiations, she agreed by last week to let Dutch banking giant ABN AMRO acquire 75 per cent in BOA.

Giving away the bank to ABN AMRO, after slightly more than a year of decisive control, represented a strategic retreat by Nongluck. The financial crisis has not only dealt a blow to the family's cashflow but also posted a systemic risk to the Thai banking system.

If Nongluck could have turned the clock back, she would certainly have acted otherwise. But that is easy to say. In 1996 nobody could have predicted Thailand's financial meltdown. The irony is that in the BOA affair the Phatraprasit-Euarchukiati-Finance One feuds have produced all losers in the end. ABN AMRO, a complete outsider, is the victor by default. But it is not a complete end-game.

In a sense, Nongluck has proved to be more realistic than the Tejaphaibul family. The Tejaphaibuls' stubbornness and resistance to change led them to lose everything in the Bangkok Metropolitan Bank, which has been nationalised by the banking regulators along with First Bangkok City Bank, Siam City Bank and Bangkok Bank of Commerce.

BOA's Bt130-billion loan book is saddled with non-performing loans of about 12 per cent. Amid the acute economic distress and rising non-performing loans down the road, the bank will need to raise huge capital to meet the tough capital adequacy ratio and loan-loss provisions as prescribed by the International Monetary Fund.

Like most distinct families, the Phatraprasits do not have the ability to raise cash to maintain their controlling stake. Only a capital injection from a foreign strategic partner would save BOA.

Chulakorn Singhakowin, the president, was responsible for most of the negotiations with the suitors. ABN AMRO, rated by Standard & Poor's as AA/Stable/A-1+, proved to be the most aggressive.

The Dutch bank has blazed a trail of mergers and acquisitions to build up a full branch operation in Bangkok. It also controls ABN AMRO Hoare Govett, the regional securities house which has recently acquired about 35 per cent in Asia Securities Trading Plc.

Negotiations with ABN AMRO were extremely tough since the Thai side did not have much bargaining power, except a good franchise of 110 branches nation-wide. What ABN AMRO likes about the Thai bank is that Nongluck has allowed the management a free hand to run the show. More importantly, the bank's loans to the major shareholders account for slightly more than 2 per cent of the total, lending credence to a high degree of professionalism.

The fact that Chavalit Thanachanan, a former Bank of Thailand governor who is broadly respected for his integrity, is the bank's chairman also adds credibility to the management.

Although there are 15 commercial banks, it is not easy for a foreign bank to snap one up. The four nationalised banks might not be good targets since their books are really messy despite the huge write-down in capital. Besides, they cannot be treated as going concerns.

Citibank NA, the American bank, has walked away from the First Bangkok City Bank deal. The major shareholders of Laem Thong Bank are not easy to work with. Union Bank of Bangkok, despite a recent rapprochement among the rival shareholders, still offers an uncertain outlook.

Thai Military Bank is too big and is controlled by military strongmen. Bank of Ayudhya will try to retain its conservative bent. Thai Farmers Bank will strive to maintain its independence. Bangkok Bank will look only for new passive shareholders, not a strategic partner.

Krung Thai Bank is government-owned. Siam Commercial Bank prefers to tie up loosely with Japanese banks.

Only Nakornthon Bank is another interesting target to a foreign strategic investor. Nakornthon will soon complete a package similar to the ABN AMRO-BOA deal.

In this sense, ABN AMRO has a very good deal, although it has to put a down payment of Bt7.5 billion for a 75 per cent stake. But this amount of money is peanuts to the Dutch bank, which has ample retained earnings and can raise money cheaply in the international financial markets. ABN AMRO is obliged to pay another sum in early 2000, depending on a complex pricing formula.

At least Nongluck can rest assured that her bank is saved with a fresh capital of Bt7.5 billion, which will send BOA's capital adequacy ratio to 14 per cent -- higher than the impending standard of 12 per cent.

ABN AMRO has promised not to change the name of the Thai franchise. Its branch operation will continue to concentrate on wholesale banking, while it will seek to benefit from BOA's retail banking and middle market. That is why the Dutch bank will retain the professional management. Chulakorn will continue to be president, with Chavalit as chairman.

In two or three years, after the financial crisis is over, BOA may be a stronger bank, with a larger market share. By that time, Nongluck may be able to look back again at last week's decision as one that started a radical change in the course of the Thai banking system.

Despite the dilution effect, Nongluck still retains more than 200 million shares in BOA. She can still cash in handsomely, if BOA's share price rises from the present Bt20 to Bt100 in a few years.

Certainly, the ABN AMRO takeover of BOA is not Nongluck's endgame.





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