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State unit shares tied to return of foreign investment


THE chief of the exchange watchdog has called on the government to speed up the privatisation of state enterprises, the public listing of whose shares will not only add quality supply to the stock market but signal to foreign investors that Thailand is committed to further deregulating and improving the efficiency of its economy.

Pakorn Malakul Na Ayudhya, the secretary general of the Securities and Exchange Commission, emphasised that privatisation will be one of the important avenues the government should explore in order to win back the confidence of international investors and pave the way for restoring the country's macro-economic stability.

Initial public offerings by the state enterprises providing infrastructure services such as water, electricity, energy or telecommunications will add to the supply of the stock market, which is badly in need of large capitalised and quality stocks to attract fresh funds, he added. ''I understand that the government's privatisation policy is in the hands of Dr Bhokin (Polakula, the PM's Office minister), who is still working it out," Pakorn said.

The Thai stock market has been badly battered by the dismal corporate earnings outlook and balance of payments situation as well as financial and foreign exchange crises, making it one of the world's worst emerging market performers. This year alone it has shed about 50 per cent of its value to an index level of about 519.76 yesterday, on the back of a 35 per cent loss in 1996.

The core holdings of foreign investors, who provide a chunk of the liquidity in the market, had been bank, finance, telecommunications and energy stocks. Yet with the deepening of the financial crisis, they have sold bank and finance stocks, depressing a market in which bank and finance stocks used to account for about 40 per cent of total market capitalisation.

Pakorn said privatised issues will be attractive to local and foreign investors since their performances are less likely to be affected by the economic cycles.

The stock market meltdown has complicated the authorities' efforts to tackle the financial sector crisis, since most of the financial institutions or corporations are asset financing-based. The SET's plunge has increased the numbers of non-performing loans and level of corporate indebtedness of finance companies, which, nevertheless, are not expected to peak until the middle of 1998, according to a US investment banking firm.

From the exchange watchdog's point of view, the SEC's regulatory measures are likely to be defensive rather than offensive at this juncture, while the finance and banking regulators are trying to put the country's macro-economic house in order.

''The capital market is merely a reflection of the macro-economic picture," Prasarn Trairatvorakul, Pakorn's deputy, said.

He said privatisation of state enterprises should be done primarily to raise the efficiency of management and improve performance, rather than the narrow focus on how much revenue the government can generate from the IPOs.

He cited the British experience as an example, saying the first two years of the Thatcher administration's privatisation programme was haphazardly implemented. Yet after Thatcher got her act together, she encouraged British state enterprises to boost their efficiency through alliances with foreign partners, after which they would be better positioned for successful public offerings.

Structurally, the exchange watchdog is looking after four constituencies: supply or listed companies, investors (local and foreign), brokers and mutual funds, and the transaction or payment system. The market needs some quality products to attract foreign investors, most of whom are staying on the sidelines awaiting more attractive issues and the stabilisation of the financial and foreign exchange crises.

Several foreign fund managers have visited the exchange watchdog to seek an official assessment of investment opportunities. Some are interested in setting up mutual funds specifically to buy up unit trusts in the stock market, many of which are being traded at a 20 per cent discount and are due for redemption next year.

To bring an end to the financial crisis, Pakorn urged the creation of a deposit insurance scheme to protect money the public has deposited with financial institutions. He said instead of protecting the shareholders or the management of a failed financial institution, the authorities should use their limited resources to protect public depositors.

''In the US, public depositors are protected to a maximum of US$200,000 per account. So people diversify the risk by depositing their money in several institutions. In the UK, the deposit insurance body guarantees up to 75 per cent of public deposits. I think this is an avenue we should start to consider seriously," he said.





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