Thailand: Heading Back To The Black?

As Thai debtors restructure, recovery seems nearer

It has been a long time since executives at TelecomAsia Corp. could focus on the future. For the past three years, since the Asia crisis hit Thailand's biggest private phone operator full force, the company has been digging out from more than $1.6 billion in debt. Even though it was backed by giant Charoen Pokphand Group and Bell Atlantic Corp., TelecomAsia struggled to make payments to creditors. By late 1998, its once-popular stock had plunged to a fraction of its pre-crisis high. But thanks to a debt-restructuring deal likely to be sealed in mid-February, Chief Executive Supachai Chearavanont can move ahead with plans to triple new capital spending and turn the company into an Internet powerhouse. TelecomAsia will be "more aggressive," Supachai says. "You always have to go after new opportunities."

TelecomAsia is just one beneficiary of a recent dash to clear up the crushing debts of Corporate Thailand. In the past two months, beleaguered blue chips in industries from real estate to chemicals have announced plans to restructure more than $5.5 billion in debt. Analysts say the agreements with creditors mark a turning point in Thailand's recovery, clearing the way for a new focus on growth rather than past problems.

MISGUIDED. In part, the deals have been driven by deadlines and the fear of bankruptcy court. But there's also a sense that it's time for Thai companies to put the crisis behind them. New optimism has helped push Thailand's stock index up 31% since the deals started being announced. Among the companies concluding debt workouts recently are Thailand's other major telco, TT&T, property developer Tanayong, and sugar mill operator Wangkanai Group. "We are starting to see the logjam cleared," says Sriyan Pietersz, research director at SG Securities Asia. With more deals expected in the coming months, Pietersz expects nonperforming loans to drop to 30% of total debt, down from a crisis high of 48%. With healthier banks, the economy, which grew 4.7% last year, is likely to grow at 6% this year, he says.

Perhaps the most important financial restructuring deal was reached on Jan. 17 by industrial giant Thai Petrochemical Industry Co. TPI had run up $3.5 billion in debt on misguided expansion plans during Asia's boom years. Like TelecomAsia, it had stopped paying creditors after the crisis hit. As the Thai government tried to push an International Monetary Fund plan to toughen bankruptcy laws, TPI Chief Executive Prachai Leophairatana led the opposition, denouncing what he termed a foreign plot to take over the kingdom. But after years of negotiations, TPI faced an ultimatum: make a deal or end up in bankruptcy court. TPI'S agreement with creditors, led by Germany's KfW, swaps group debt for equity and reschedules payment on the remainder.

Since TPI was the highest-profile opponent of restructuring, the deal is a relief to those looking for progress. TPI management is next looking to raise $1 billion in a bond offering to pay off the debt and raise its equity stake back to 50%, up from 40% now.

But even with the shifting sentiments and new agreements, Thailand's debts remain high. Nonperforming loans still amount to $62 billion, or 42% of total loans. The bankruptcy process "is still feeling its way," says Neil Semple, a senior analyst at ABN-Amro Inc. Plus, companies are struggling with overcapacity. TelecomAsia borrowed so much to build out its network that 44% of its 2.6 million lines remain unused. While that should improve by yearend, says Goldman, Sachs & Co. analyst Candice Hwa, it will take years before the company can operate at capacity.

Also, political uncertainty means controversial liberalization moves, such as allowing more telecom competition, are off. That's bad news for TelecomAsia and TT&T, which under new rules would no longer share revenues with the state.

Still there are unmistakable signs of progress. A year ago, only three companies were in bankruptcy proceedings. Now, thanks to a six-month-old bankruptcy law that makes it easier for creditors to go to court, that number has zoomed to 1,350.

As Thailand makes headway clearing up its corporate mess, the timing could hardly be better for Prime Minister Chuan Leekpai. He faces elections by November but has encountered severe criticism from the opposition for pushing IMF-backed reforms. The good economic news should help Chuan win points with voters. Interest rates, in double digits during the darkest days of the crisis in mid-1998, are now around 8% and continue to fall. The process of recovery is far from perfect. But with recalcitrant debtors finally coming to terms with their bankers, Thai business is daring to hope once more.

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