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Creditors left with slim pickings


Foreign and local creditors might have to scramble for the bony remains of the 16 ailing firms, explains Thanong Khanthong and Vatchara Charoonsantikul.

The fate of the 16 beleaguered finance companies is still hanging in the balance although the government has agreed to give them another 104 days 14 for the appointment of independent valuers, 60 days for the valuation works and 30 days for official approval of the rescue plans.

This is simply another attempt to buy time. The biggest, if not most complicated, problem will lie in how the foreign or local creditors will reclaim the combined Bt30 billion they loaned to the group of 16.

The Nation designed a financial structure of the 16 finance companies as a rough guideline for approaching the issue. All the figures are estimates, chiefly for illustration purposes. Assuming that the combined assets and liabilities of the 16 firms stand at Bt400 billion, if the non-performing loan (NPL) average of the finance sector is about 25 per cent, the NPL of the 16 firms should be around Bt100 billion. There will remain only Bt300 billion in good assets.

On the liabilities side, assume that the promissory notes of the public reach Bt100 billion; the loans from the Financial Institutions Development Fund amount to Bt150 billion; the loans from foreign creditors amount to Bt30 billion; the loans from domestic creditors total Bt60 billion; and net worth or shareholders' equity is Bt60 billion. Subtracting the net worth of Bt60 billion from the NPL of Bt100 billion, the 16 ailing firms will end up facing a negative net worth of Bt40 billion. Who will assume this liability?

Obviously, the promissory-note holders will be treated given priority as first-class citizens. They'll certainly get their full Bt100 billion in deposits back, although repayments will be extended over a period of time depending on the size of the deposits.

Of the Bt320 billion in bail-out support to the cash-strapped finance companies, the Financial Institutions Development Fund has handed out Bt150 billion to the group of 16. The indication is clear that the fund wants to line up behind the P/N holders to reclaim its money.

The advantage of the fund is that it has the P/Ns of the 16 finance companies as collateral. Most local and foreign creditors loaned money to the 16 ailing firms on a clean-loan basis. If the fund takes away Bt150 billion, then there will be very little left for the foreign and local creditors to share. Although these two groups of creditors loaned Bt90 billion to the 16 firms, there will be only Bt50 billion in good assets left for them. The Bt40 billion in negative net worth may have to be proportionately shared.

The ad hoc committee, chaired by Nibhat Bhukkanasut, director-general of the Treasury Department, has urged the 16 ailing firms to try to negotiate with their creditors on possibly rescheduling the debt, reducing interest burdens or even reducing the debts. If net worth is positive, there won't be much of a problem negotiating with the creditors. However, who will decide good and bad assets? The ad hoc committee said independent valuers will be appointed for the task, yet if they are not really equipped with market knowledge, they aren't likely to produce results that will satisfy all creditors. The problem has only just begun.



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