Thailand: Pay Our Creditors? What A Crazy Idea!

Thailand's tycoons are out to defang a new bankruptcy bill

In Thailand, where keeping creditors at bay has become almost a national sport, few businesspeople have been more successful than Prachai Leophairatana. He's CEO of Thai Petrochemical Industry, anchor of TPI Group, with $1.9 billion in sales last year. Since September, 1997, the group has not made payments on its $4.3 billion in debts. Prachai calls himself a victim of the International Monetary Fund's "dirty agenda" to hurt his country: "I've lost my reputation, my honor, my integrity, everything."

Well, not quite everything. Prachai still has his place at the head of TPI as well as a seat in the unelected Upper House of Parliament. For months, Prachai the businessman has engaged in restructuring talks with foreign creditors. At the same time, Prachai the senator is helping lead the fight against new bankruptcy and foreclosure laws that would give creditors some leverage against debtors like himself. In late January, he and other like-minded senators plan to fly to Washington to make their case to the IMF, although they have no meetings set. Says Prachai: "There is no need for this foreclosure law."

The showdown is becoming the biggest test yet of Prime Minister Chuan Leekpai's reformist government. An overhaul of Thailand's archaic bankruptcy laws is essential to a speedy restructuring of industry. The proposed laws would establish bankruptcy courts for the first time, help debtors receive new capital, and strengthen creditors' positions by vastly expediting the foreclosure process.

But parliamentary critics have managed to stymie the government for months. Chuan first promised the IMF that legislation would pass by the end of last October. After missing that deadline, he pledged to get laws through by yearend. That didn't happen, either, and was one reason for the failure of a government auction of real estate loans in December. The deadline is now March, but foreign investors are not holding their breath. Says Thomas A. Seale, executive director of the American Chamber of Commerce in Bangkok: "The government is on the right path, but the story drags on and on and on."

The slow pace is all too familiar to Wisit Wisitsora-at. As executive director of the new Business Reorganization Office of the Legal Execution Dept., Wisit investigates bankrupt companies. He has a tiny caseload. Only three companies are undergoing formal bankruptcy proceedings, since creditors have a hard time forcing companies into bankruptcy without their O.K. Without new bankruptcy laws, companies must resort to informal restructuring talks. Yet foreclosures can take as long as eight years, giving debtors the edge. "Once you become grossly insolvent, you are not supposed to be in a position of strength," says Mike Wansley, a Bangkok-based partner in Deloitte Touche Tohmatsu's corporate restructuring practice. "But here they think they are."

"THERE IS PROGRESS." Some of the informal talks have borne fruit. Cellular operator Ucom has rescheduled its debts. Swiss-based Holderbank has taken 25% of Siam City Cement and put in a new chief executive. "There is progress," says Donaldson L. Hartman, an analyst with Salomon Smith Barney in Bangkok. Still, other companies figure they can stall. "Why do anything if some senator is going to bail you out?" Hartman asks.

Senators, many of them business owners with large debts, want to weaken any laws that do pass. Some want a two-year grace period before creditors can begin formal proceedings. Others think personal guarantees of loans should be off-limits in bankruptcy proceedings. Many had pledged personal assets as collateral for loans to their companies, and they would likely be forced into personal bankruptcy under the new laws.

Finance Minister Tarrin Nimmanahaeminda may agree to such changes simply to get a package through. "Personal bankruptcy is off the table," says David Hendrix, executive vice-president of Bank of Asia, a local bank now controlled by Dutch giant ABN-Amro Ltd. "It means [tycoons] will still be wealthy, [and] the companies will go bust." Thailand's reformers had wanted a level playing field. Now they must settle for one that's just a little less tilted.