Back to Bangkok Post
Back to index page

Go to top

Go to business news updates
Back to Economic Review index page

 

Restructuring and rescheduling of corporate debt made considerable headway but the effects will impinge on business growth for many years to come

 

CORPORATE DEBT

Finally cleaning up the mess

KOCHAKORN BOONLAI

If the year 2000 had one distinguishing feature, it would probably be the scale of debt restructuring, either through the Central Bankruptcy Court or with the guidance of the central bankûs Corporate Debt Restructuring Advisory Committee (CDRAC).

In many cases, debtors and creditors reached restructuring agreements without intervention by a third party. By November, 140 companies had filed business rehabilitation petitions with the Central Bankruptcy Court.

The court ordered two petitions to be withdrawn, ordered 128 companies to proceed with rehabilitation, and is considering the circumstances of the remaining 10 companies.

Of the 128 companies to proceed with rehabilitation, the court ordered petition withdrawals for seven and cancelled rehabilitation in four cases.

Most recently, 31 companies with plans to restructure total debts of 545.9 billion baht received creditor approval of their proposals. Of these 31 companies, three restructured their debts and the court ordered cancellation of their business rehabilitation plans. They are Thai Gypsum Products Plc, Thai Oil Co and Sinn Bualuang Plc.

Companies that began implementing plans approved by their creditors included Alphatec Electronics Plc, Sino-Thai Engineering and Construction Plc, Srithai Superware Plc, Panjapol Pulp Industry Plc, Panjapol Paper Industry Co, Thai Telephone and Telecommunication Plc.

Those with plans being prepared or at creditor-approval stage included Thai Petrochemical Industry Plc, NTS Steel Groups Plc, Robinson Department Store Plc, STA Group and Siam Syntech Construction Plc.

Visith Visitsora-ath, deputy director-general of the Legal Execution Department and acting director of the departmentûs debt restructuring office, said that in the past, some 10 to 20 business rehabilitation petitions were filed to the court each month.

However, last November, only one petition was filed, mainly because most companies had already taken such steps.

Restructuring authority nearly finished awesome task NUNTAWAN POLKWAMDEE The Financial Sector Restructuring Authority enters 2001 with its work of liquidating the dozens of finance companies seized during the crisis nearly completed. Proceeds from the sale of assets of the firms are expected to be repaid to creditors over the next few months. A total of 263.3 billion baht has been raised from the sales, representing 35% of the 742.3 billion outstanding balance on the assets. Another 180 billion baht worth in assets remains in the hands of the FRA, held up from sale by legal suits or under restructuring. First to be repaid were creditors of seven finance companies at the end of 2000, with 8.6 billion baht returned against liabilities of 38.2 billion. The seven firms would then enter the bankruptcy process and be formally closed, a pattern to be followed for all of the firms under FRA supervision, except five being handled by the Central Bankruptcy Court. The FRA was forced to file bankruptcy suits against five finance companies - Asia Thanakit, Siam City Credit, SCF Finance and Securities, Siam City Syndicate and Thanamass Finance - to halt claims filed by creditors which had refused to follow the repayment process set by the state authority. Meanwhile, the Asset Management Corporation, set up as ''bidder of last resort'' for the FRA auctions, completed debt restructuring of nearly all the assets purchased. The state-owned AMC had purchased assets worth 197 billion baht from the FRA auctions for around 30 billion baht. As of December, assets with a book value of only around ten billion baht remained to be restructured, mostly representing loans or assets being restructured under the Corporate Debt Restructuring Advisory Committee. The AMC plans to sell assets with an outstanding book value of 60 billion baht, with some 5-6 billion planned to be sold this year. Gradual sales over the next five years are planned to avoid upsetting market conditions.

Turning to approval of rehabilitation plans, he said that in October seven plans received creditor approval, up from two per month previously. The trend could be a sign of more successful restructuring.

A lawyer, who declined to be named, said that debt restructuring through the court could be very time-consuming, particularly for companies with substantial debts and in conflict with many creditors.

The time delays might be because the court did not play a role as a mediator. Instead, each party was encouraged to show as much evidence as possible to prove its point. Top of the list was whether the liabilities of the debtor exceeded its assets.

However, restructuring through the Central Bankruptcy Court remained a good alternative as the creditors felt that they were going to be protected by law. At the same time, the debtors were also well protected by law in the sense that no suits could be brought against the debtor if its case was before the court.

Many cases that went through the procedures of the Corporate Debt Restructuring Advisory Committee later had to go to the Central Bankruptcy Court. This is because the CDRAC deals only with financial creditors but not trade creditors.

As a result, most debtors faced the risk of being sued by trade creditors who were not included in the CDRACûs procedures.

By the end of September, about 383,000 cases, involving debts totalling 2.2 billion baht, had entered the CDRAC's restructuring process. Of these, 310,000 involved debts totalling 1.8 billion baht that were restructured eventually.

Fewer cases are likely to enter CDRAC's restructuring process, partly because of the establishment of asset management corporations by financial institutions.

In 2001, most new petitions are expected to come from small and medium-sized enterprises (SMEs).

As many companies are still preparing their rehabilitation plans or implementing them, substantial progress is expected to be made in restructuring next year. Over the next four or five years, those companies, particularly large ones that have restructured their debts, will have to use most of their earnings to repay rescheduled debts.

As a result, it will be difficult to expand their businesses, despite their captive markets. This will lead to higher operating costs for the companies, making them less competitive.

Back to Economic Review index page
Go to top of this page
Go to business news updates
Back to Bangkok Post front page