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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