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First salvo fired in whisky war


June 28, 1999 -- THE great credit crunch presently ravaging the Thai economy proved to be no obstacle at all for liquor tycoon Charoen Sirivadhanabhakdi to raise any amount of money, if necessary, to defend his whisky empire.

The Bt18 billion whisky bond, recently launched by LSPV Co Ltd, one of his privately-controlled companies, is part of his big gamble to maintain his predominance in the liquor market where he has enjoyed somewhat of a monopoly over the past decade.

Now that the government's concession for Mekong liquor will expire by the end of this year, Charoen isn't sure whether he'll beat his rivals in the cut-throat bidding for exclusive rights to produce and distribute the popular brand that embodies the Thai drinking culture.

He will show no mercy in the whisky war. If he is to lose out in the bidding, his rival should lose to. How?

Charoen will be stocking up on Mekong liquor so that his nationwide distribution network can continue to supply the brand to the market over the next three years. There is no regulation barring Charoen from doing so under the present concession.

Then he'll launch a price war. The price of Mekong will be slashed so low that it will be impossible for the newcomer, already burdened with an initial huge investment, to compete. It will be a test of mettle. For the newcomer must be ready to wage a price war for three years running during which Mekong from Charoen's stock will come out to compete with the Mekong from the newcomer's distilleries.

To be able to stock Mekong for three years, Charoen has estimated that he'll need Bt18 billion. Since banks are reluctant to lend this sizeable amount, he has to raise the money based on his own creditworthiness and assets through the whisky bond.

Dr Olarn Chaipravat, the former president of the Siam Commercial Bank, described the whisky bond as an ''alternative financing'' to bank loans at a time of banking distress. In this money-raising exercise, Charoen, through LSPV, has his liquor stock worth Bt30 billion securitised as the Bt18 billion whisky bond. The bond, issued in different tranches, carries an interest rate of about 10.5-11 per cent. LSPV recently raised the second tranche worth Bt6 billion.

Investors have snapped up the bonds, offered through private placement, because it offers a high investment return. Unlike other securitisations, backed by immovable assets such as land or property, the whisky bond looks more practical. In case of a default, the bondholders can quickly sell off the liquor in stock for quick cash.

The newcomer might have to think twice before bidding for Mekong. If he bows out, Charoen will make a convenient comeback to continue to dominate the liquor mass market.

By the way, Charoen is not complacent. He realises that Mekong is a government-owned brand. He'll be better off in the long run if he is to develop his own brand -- hence the resurrection of Saeng Som.

Since Charoen already has a licence to produce Saeng Som for life, he is starting to invest heavily in this brand with the aim of turning it into a popular brand one day. Investment at about Bt4 billion has been planned for four Saeng Som factories, which will be strategically located in four main parts of Thailand.

In the local market, Charoen is impossible to beat. But in the back of his mind, he is starting to get worried about the invasion of cheap imported whisky -- the likes of Royal Sprey, Blue Eagle or Hunter. The market shares of these brands have been rising dramatically.

The foreign brands, aged three years, is sold at around Bt200 a bottle, compared to Bt146 a bottle for Mekong. For Thais, moving away from Mekong to embrace one of the classy Scottish brands by paying Bt60 a bottle more looks affordable.

This is the battle that will occupy Charoen's energy and focus over the coming years. In his case, eliminating the enemies from the inside is not good enough. The enemies from the outside look more predatory.




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