ON March 28, right in the middle of Thai Farmers Bank's presentation to international
institutional investors in New York, Finance Minister Tarrin Nimmanahaeminda slipped in
almost incognito to help the bank do a 376-million-share private placement.
He told Banthoon Lamsam, the TFB president: ''You have requested my help, so you must
not fail.''
Tarrin, who accompanied Prime Minister Chuan Leekpai to the US as a guest of President
Bill Clinton, stayed on to answer the foreign fund managers' difficult questions, which
ranged from the stability of the Chuan government, the prospect of reform and economic
recovery, and foreign competition in the banking industry, as well as non-performing loans
in the financial system.
The TFB deal, which tested the water at a time when the outlook for the Thai economy
was highly uncertain, turned out to be a resounding success, mustering Bt88 apiece or
bringing in Bt33.08 billion in fresh capital to the bank. Then TFB, whose deal was advised
by Goldman Sachs, was trading at Bt78 a share on the Thai stock exchange. The success of
the deal represented, in the words of Steve Wisch, managing director of equity capital
markets, ''not only a turning point for Thailand but also for Asia''.
Today Bangkok Bank will be doing a similar book-building to finalise its offering of
400 million shares. The BBL and TFB deals will be closely compared, for the two big banks
are clear survivors in the Thai banking system and the prices they get form benchmarks for
other Thai companies to re-access international capital markets.
Although Bangkok Bank, which is being advised by Morgan Stanley, is deprived of the
finance minister's salesmanship, its name as Thailand's biggest banking franchise should
be good enough for it to muster a better price than TFB. Some analysts say BBL is unlikely
to fetch a price higher than Bt100 apiece. Yesterday BBL closed at Bt79.50 on the Thai
stock exchange.
A note of caution has been raised over BBL's 400-million-share recapitalisation, which
may bring in Bt36 billion in fresh capital based on the assumption that it garners an
average share price of Bt90. Roy I Ramos, a banking analyst at Goldman Sachs in Hong Kong,
expressed skepticism over the BBL deal being a one-time recapitalisation since, according
to him, the amount might not be enough to cope with the bank's loan-loss provisioning.
Based on Goldman Sachs' model, BBL will need as much as Bt55-Bt56 billion to fulfill a
minimum comfortable Tier I capital ratio of 7 per cent. This assumes that its
non-performing loans peak at 34 per cent or Bt410 billion of total loans by 1999 and its
loan-loss provisioning at 45 per cent of the total non-performing loans in the same
period.
Ramos expects the non-performing loans in the Thai banking system to top 40 per cent of
total loans.
Since BBL is expected to fetch Bt36 billion from this capital-raising exercise, it will
need to raise at least Bt30 billion next year, Ramos said.
The reason BBL has a preference to issue only 400 million shares this time is that it
hopes its non-performing loans won't rise beyond 30 per cent. It has also showed its
flexibility by indicating it may raise up to 300 million additional shares, mostly local,
in the future.
However, on a recent company visit, Ramos was told by Chartsiri Sophonpanich, the BBL
president, that BBL had no plans to embark on another capital-increase exercise after the
400-million-share offering in the foreseeable future.
In the TFB capital-increase exercise, Banthoon earlier said he aimed for a one-time
recapitalisation, erasing any doubts over the bank's capital adequacy over the next five
years. Goldman Sachs expects the bank's non-performing loans to peak at 30 per cent, or
Bt200 billion, by 1999 before declining to 15 per cent in the year 2002.
TFB's ultimate recovery ratio of its non-performing loans is expected to be 50-60 per
cent, assuming a gradual recovery for the Thai economy by mid-1999. Moreover, TFB's
loan-loss reserves are expected to reach 40 per cent of total non-performing loans by 2000
and 47 per cent by 2001 and 55 per cent by 2002 -- levels that are adequate.
The institutional investors, who subscribed to the TFB's private placement, were 30 per
cent US, an equal 30 per cent Europeans, 35 per cent Asians. The remaining 5 per cent were
retail investors.
BY THANONG KHANTHONG