STOCKS Low interest rates on bank deposits, combined with improved corporate earnings, drew investors back to stocks

Some gain after all the pain

NUNTAWAN POLKWAMDEE

Activity on the Stock Exchange of Thailand picked up considerably throughout 1999, reflecting investor sentiment that the worst for the economy was over and corporate performance would improve.

Efforts by the government to spur economic growth through tax incentives and fiscal programmes eased pressure on listed firms.

Falling interest rates, low inflation and a stable baht also gave companies room to pare their expenses, restructure debt and operations.

Several sectors, notably building materials, vehicles and parts and electronics, saw sharp gains in share prices, particularly for firms able to focus on exports to substitute for weak local sales.

Overall, production utilisation climbed steadily through the course of the year, reaching about 63% by late 1999.

Recovered?
Sales growth of 244 SET-listed firms, non-bank sectors
Sector	4Q98	1Q99	2Q99	3Q99
Agribusiness	-1.5	-6.3	14.9	9.9
Building Materials	6.1	-7.3	8.6	5.8
Chemicals	-19.4	-26.3	28.5	16.2
Commerce	6.8	-3.2	4.1	5.0
Telecommunications	-11.7	-7.6	-8.5	9.2
Electronics	-2.9	-11.4	14.6	26.7
Energy	4.9	-7.8	5.5	20.6
Entertainment	-6.1	-14.6	4.9	2.1
Packaging	-7.1	-1.0	-7.7	2.5
Property	-33.5	-20.2	-8.6	-10.7
Pulp and paper	-5.4	3.4	11.3	7.6
Transportation	10.6	2.9	-7.9	6.9
Total	-5.5	-4.7	4.4	6.5

The International Monetary Fund revised upwards its growth forecast for the economy to 4% for 1999, buoyed by export gains which represent some 35-40% of gross domestic product.

Still, concerns about regional stability in the currency markets and rising oil prices dampened expectations of a sharp gain in local markets.

But overall, many analysts expect share prices to gain steadily throughout 2000, particularly for companies which have completed debt restructuring and recapitalisation.

Average trading volume on the Stock Exchange of Thailand from January to early December stood at 6.67 billion baht per day.

The highest point for share prices came on June 22, when the SET index closed at 545.91 points, with the low for the year coming on February 11, at 313.65 points.

If expectations of economic recovery hold, some analysts expect the SET index could break 750 points by the end of 2000.

Already, several companies are preparing for new public offerings on the SET or the new Market for Alternative Instruments to take advantage of improved investor sentiment.

The MAI, touted as a new market for small- and medium-sized enterprises, takes over the role within Thailand's securities field formerly played by the Bangkok Stock Dealing Centre, which formally closed its doors in 1999.

Officials expect some 10 companies to seek listing on the new market in 2000, including electronics, telecommunications and food processing companies.

Listing requirements for the new market are much easier than on the larger SET. Instead, regulators say they will use a disclosure-based approach to ensure sufficient safeguards for investor interests.

Market activity should get another boost from the planned listing or public offerings of several state enterprises, such as the Ratchaburi power plant in August 2000.

Local bond markets similarly saw a pickup in activity over the past year, helped by declining interest rates and the need of firms to refinance existing debt. Daily turnover on the Thai Bond Dealing Centre stood at around two billion baht per year over 1999, compared to just 300 million the year before.

With bank deposit rates near historic lows at 3%, liquidity in the markets was plentiful, with high interest among large individual investors in new corporate debentures from firms such as Siam Cement and Shin Satellite.

With interest rates expected to stay stable throughout 2000, investment bankers predict more bond issues to come, not only from blue-chip firms, but medium-grade credits as well.

Market development

In October, the SET board relaxed listing criteria to ease the entry of new firms into the market. Listing rules for state enterprises and infrastructure projects were also eased to support government privatisation plans.

For new common share listings, the minimum paid-up capital requirement was doubled to 200 million baht to boost the number and liquidity of shares traded on the market.

But minimum profit requirements prior to listing were eased and minimum market capitalisation rules revoked.

For state enterprises, the rule for share distribution to minor shareholders was changed to at least 10% of paid-up capital from 12.5%.

For infrastructure projects, the minimum project cost requirement of 10 billion baht was revoked, as well as the rule requiring accumulated losses to be eliminated within three years. Minimum concession terms was set at 20 years, with at least 15 years remaining.

The SET also moved forward to prepare for share trading on the Internet. Member brokerage firms would oversee customer risks, while the Securities and Exchange Commission would be responsible for monitoring the overall stability of the securities industry.

Before formal Internet trading could be approved, standards ensuring security and guarding against settlement risk would have to be drafted, with progress expected in 2000.

Internet trade is expected to increase pressure on trading commissions to fall, benefiting retail investors. The threat of increased competition pressed the Association of Securities Companies to agree to a new commission structure, set from 0.25-0.45% per transaction, to replace the former fixed 0.5% fee.

Also expected for introduction in 2000 are new listed derivative products, index options based on large-capitalisation shares comprising the SET-50 index.

Meanwhile, SET regulators and member brokerages are also expected to explore the concept of demutualisation for the market. A growing trend overseas, demutualisation would see the SET incorporated as a listed firm and ownership diversified.

Regulatory duties would likely be transferred to the Securities and Exchange Commission, to prevent potential conflicts of interest.

Responsible for ushering in these new changes will be Vicharat Vichit-vadakan, a former secretary-general of the Financial Sector Restructuring Authority and executive director of Krung Thai Bank.

Mr Vicharat was elected the SET's eighth president in August, replacing Singh Tangtatsawas, who resigned to become president of Krung Thai.

A key task will be continuing the drive to improve corporate governance among listed firms, including strengthening internal controls, disclosure and transparency. An Institute of Directors was opened in October, with the goal of educating company directors about their roles and responsibilities under securities laws and market regulations.

SEC officials, meanwhile, continued policies to impose social sanctions on executives and directors found to have violated market rules and ethical standards.

At the end of 1999, there were 31 full securities brokers, although only about 21 were active in the market.

But activity should pick up in 2000, buoyed by a projected increase in foreign orders after Y2K and as economic recovery strengthens. Local investors comprised about 70% of total market turnover for 1999.

Finance companies, meanwhile, spent much of the year focused on consolidating operations and rehabilitating non-performing loans.

With competition expected to increase sharply in the financial services industry, many firms sought to streamline operations and focus on niche markets.

The FRA bows out, mission accomplished

The Financial Sector Restructuring Authority completed its mission of selling assets of the 56 defunct finance companies in 1999.

Overall, the FRA raised 186.26 billion baht from the sale of core and non-core assets, representing 28.02% of an outstanding baht value of 664.8 billion baht.

Assets sold by December represented 84% of the total assets of the closed finance companies. Remaining assets represent mostly loans which were held up in legal proceedings, or had failed to reach minimum FRA bid prices at auction.

Thai investors paid 68.11 billion baht for assets auctioned, representing 22.77% of the outstanding principal balance of the assets sold.

Largest among local investors was the state-owned Asset Management Corporation, paying 33.7 billion baht for assets with a book value of 197 billion baht, equal to 32.8% of the total auctioned.

Second among Thai investors was Kiatnakin Finance, which purchased about 10.7% of the assets sold.

Foreign investors paid 152.17 billion baht, or 25.35% of the principal balance of the assets sold. Largest was Goldman Sachs, which paid 45.4 billion baht for assets with an outstanding balance of 208.8 billion baht.

Amaret Sila-on, FRA chairman, announced his resignation from the authority effective this February.

Kamol Juntima, former comptroller-general, has been named as Mr Amaret's successor, and will be responsible for overseeing the process of

repaying creditors of the 56 finance companies.

Largest of the creditors is the central bank's Financial Institutions Development Fund, holding around 90% of total claims.

Overall, Mr Amaret expressed satisfaction with the FRA's performance over the past two years, saying returns generated compared favourably to similar organisations set up in other countries to handle banking crises.

The Asset Management Corporation, meanwhile, focused primarily on restructuring loan assets purchased from the FRA auctions.

The state agency said it was prepared to take legal action against borrowers if new payment terms were unable to be settled.

Some 70% of the assets purchased by the AMC represent undeveloped land projects, with another 13% other property projects, 5% golf courses, 5% single-home projects and 2% industrial factories.

As of October, the AMC was able to restructure loans totalling about 90 billion baht.

 

 

 

 

 

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