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Debt-restructure efforts praised


September 18, 1999 -- THAILAND has struck a nice balance between government intervention and private solutions in the corporate debt-restructuring process, which is laying the foundation for a resumption of economic growth, said the chief regional counsel for Southeast Asia and India of Chase Manhattan Bank.

Speaking at a panel discussion organised by the US Information Service, John Knight was particularly upbeat about the progress of corporate debt-restructuring in Thailand, despite local criticism that it is not making headway as rapidly as many would want.

He praised the Thai authorities for sticking to the middle ground in the approach to corporate debt-restructuring, a complicated yet necessary process that must be tackled if the country hopes to emerge from the economic crisis, during which a large part of the business sector has become insolvent.

''Now it is truly the responsibility of the banks and the shareholders to do their jobs in getting the deals closed,'' said Knight, who is also a member of the Advisory Board of the Jakarta Initiative, a debt-restructuring committee set up by the Indonesian government. ''In the US, it takes a company two years to complete a debt restructuring. But here, we are talking about a large number of companies in the economy that have gone insolvent. So the process is going to take time.''

But he added that the foundation had been laid for private corporate debt-restructuring, which should lead to significant improvements over the next three to four quarters.

Knight has come to Thailand to attend a ''Corporate Restructuring and Governance: US and Thai Experience'' seminar, organised by the US Information Service this weekend in Hua Hin. Other panellists included John T Gerlach, of Sacred Heart University in the United States, and Philip Cochran, director of the Centre for the Study of Business and Public Issues, also in the US.

According to Knight, Thailand will still have to face several challenges further down the road. First, it has to deal with systematic insolvency, which has made the process of corporate restructuring more difficult.

External factors cannot be discounted, either. ''You cannot get so focused on the Thai challenges and forget restructuring exercises in Malaysia, Indonesia and South Korea. You also have the unresolved bank crisis in Japan,'' he said.

''The restraints on the resources and balance sheets of foreign banks, particularly Japanese banks, have made it difficult for them to agree on the restructuring in Thailand,'' said Knight.

The Thai crisis has also exposed the weakness or under-investment of the institutional infrastructure that is necessary to deal with economic problems -- from the underdeveloped legal, accounting and auditing professions, to the civil service in charge of regulating financial institutions. This, Knight said, has partially contributed to the crisis and made the exercise more difficult.

''I do have a concern that there will be more bankruptcies and civil litigations than the judiciary are prepared to handle,'' he said.

Restructuring does not involve only financial restructuring, Knight added. Companies and lenders have, however, put too much focus on hair-cuts, while ignoring the organisation of their businesses.

Finally, he suggested that companies should keep detailed track of the restructuring process. They should set up goals and deadlines for the periods in which creditors are required to seek recourse against them.

Gerlach, meanwhile, said that quite often corporate restructuring was negatively associated with job losses, creditors writing down their loans that have gone sour, and shareholders losing their wealth in the companies, although it is in fact a worthwhile process that eventually will bring about stronger organisations.

He said corporate restructuring would not only help companies to concentrate on their core businesses, but -- when combined with mergers and adoption of technology -- would also strengthen their success in the global environment. Companies that restructure their businesses with electronic commerce will also stand to benefit hugely from the Internet, which Gerlach said had revolutionised the retailing of goods and services.

Cochran, who specialises in corporate governance and business ethics, said constant re-invention was an essential ingredient for companies to survive in a high-competition environment. He cited an example from the United States where a number of companies that had gone through the process of restructuring in the last decade, had taken into consideration social structures, corporate citizens and business ethics. The process has made the corporates more responsive to stakeholders and consumers, he said.

Cochran added that in the long term, companies that adopt transparency or social responsibility were more likely to out-perform those who focus on the bottom-line. From his research, he has found that the stocks of companies which have good corporate governance, openness and strong auditing procedures, are in higher demand from investors.

To start the restructuring process, it must come from the stage of recognition by top management. Gerlach said, ''They must take a step back from their businesses at least once a year to see what are they doing and what is happening around the world.''

He said one of the things that American companies have learned over the past decade was that restructuring is not a one-time event. Otherwise, they would become uncompetitive.

Cochran cited the leadership example of Jack Welch of General Electric, who has succeeded within a year in driving all the units within the organisation to develop their business strategies to be associated with the Internet.

Cochran also gave the example of Bill Gates of Microsoft going into a one-week retreat with his team, before emerging with a bold decision to shift dramatically the focus of all the company's businesses around the Internet.




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