Thailand Learns Lesson of '98 Crisis as Plastics Maker Taps Locals for Debt

  • Thai companies have curbed forex risks since financial crisis
  • `Lesson learned' after Asian financial crisis, Miller says

The rehabilitation of Thailand’s TPI Polene Pcl from default during Asia’s financial crisis is making strides as it prepares a fifth bond sale to local investors in three years and its debt rallies to record highs.

The plastics and cement maker is selling 5.445 billion baht ($156 million) of notes maturing in five to seven years to retail investors, which would bring total local currency sales to 35 billion baht since 2013, according to Bloomberg-compiled data. The notes are ranked at BBB+ with a stable outlook by TRIS Rating Co., a level equivalent to four levels below investment grade on global scales. Its borrowing costs may be the cheapest yet as its 2021 bond yield hit a record low.

Two decades after the baht devaluation pummeled the region, Thai companies have curbed foreign-exchange risks by selling 4.7 trillion baht of bonds at home after 1998, more than six times the amount of offshore notes. TPI Polene, founded by the Leophairatana family in 1987, had been under court receivership until January 2009 after it failed to pay $1.3 billion of debt to creditors, while the family’s flagship Thai Petrochemical Industry Pcl was rescued by the government in 2005 after the nation’s biggest default involving $3.7 billion of liabilities.

“The outlook is quite good based on larger contribution of revenue from power projects, and we also expect cement demand will improve over the next three years with government infrastructure stimulus,” said Pravit Chaichamnapai, an analyst in Bangkok at TRIS Rating. “However, the company’s short record in bond market and past loan defaults and restructuring means that some institutional investors may not be able to invest in TPIPL’s bonds.”

Thai Companies Sell More Local Bonds After 1997 and 2008 Financial Crises

The yield on its 2021 notes has declined 23 basis points this month to 4.18 percent, the lowest since they were sold in August, according to Thai Bond Market Association pricing, extending a rally since end-September. The company’s stock has jumped 24 percent this year, bringing the gain to 132 percent over the past two years.

There was no immediate reply to e-mails to TPI Polene’s chief executive Prachai Leophairatana and senior executive vice-president Oraphin Leophairatana. A person who answered the phone at the company declined to immediately comment.

The Bangkok-based company derived 70 percent of its 27.1 billion baht of revenue in 2015 from its home market, 12 percent from China and 17 percent from other countries, its 2015 accounts show. By product segment, cement and concrete manufacturing contributed 67 percent while petrochemical and chemicals added 25 percent.

Lesson Learned

TPI Polene raised 3 billion baht from its first note offering in May 2013 and 5 billion baht from sales in January 2014, before ramping up issuance to 21.6 billion baht in 2015, according to Bloomberg data. It paid between 4.1 percent and 5.3 percent annual interest rates for various maturities. That compares with the average of 9.2 percent on Asian corporate junk notes in dollars, according to Bank of America Merrill Lynch.

“The bond will be rated BBB+ on a local scale by TRIS, roughly around B on an international scale,” said Vasu Suthiphongchai, director of fixed income in Bangkok at Manulife Asset Management (Thailand). “As such, we would not be interested. We usually invest in investment-grade bonds.”

TPI Polene’s net-debt-to-equity rose to 51.5 percent in 2015 from 19.3 percent in 2014, according to Bloomberg data. The ratio of earnings before interest, tax, depreciation and amortization to interest expense fell to 1.95 times from 3.08 times in 2014. Assessing its credit risks requires a “conservative approach” due to its past debt history, TRIS Rating said in its March 16 report.

“If they are issuing baht-denominated bonds, it would be a good lesson learned from the company’s perspective because it’s a safer move if the majority of their income is in a mixture of baht and foreign currency,” said Steven Miller, a former partner at Mayer Brown law firm who represented banks during the Thai Petrochemical restructuring marathon and has since retired. “It would be reasonably expensive to borrow from the offshore market with sub-investment grade ratings.”

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