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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Biting the Bullet

Siam Cement tackles its debts

By Assif Shameen


CHUMPOL NALAMLIENG, THE CEO of the Siam Cement group, sits calmly in his dimly lit, windowless office in an industrial building on the outskirts of Bangkok. He says he has stopped watching the computer screens as the baht steadily falls against the U.S. dollar. No wonder. With $4.3 billion in foreign-currency debt and with the baht down more than 30% to the greenback since July, the Siam Cement group is perhaps the hardest hit company in Asia by the currency turmoil. "It's unfortunate that the devaluation came when we were at the height of our expansion," says Chumpol.

Consider the challenges before him. Chumpol runs Thailand's biggest industrial conglomerate, with interests in cement, iron and steel, ceramics, paper and chemicals. He employs 35,000 people and is answerable to key shareholder Crown Property Bureau, a trust that administers the Thai royal family's assets. Last year, group sales topped $6.5 billion, with flagship Siam Cement Co. earning $191.2 million on turnover of $3 billion. The listed arm is now in the red. In the three months to June 1997, Siam Cement reported losses of $153 million -- the baht was already wobbly even before the July 2 devaluation. The losses were mainly due to the deterioration of the exchange rate from around 25 to 26 baht per $1, to nearly 29. Last week, the baht was trading at 36.75.

Some analysts say Siam Cement could rack up two-year losses of more than $700 million in 1997 and 1998. If that happens, Chumpol insists that the group would not hide the bad news. "We are a very prudent company," says the CEO. "We will put all our losses on foreign exchange upfront at the earliest possible opportunity. We want to leave these losses behind and move ahead instead of carrying them on the books."

How did the bluest of Thailand's blue chips come to this pass? "We had a huge, ambitious expansion plan," says Chumpol. "To pay for it, we could have borrowed locally, paying something like 14% per annum, or borrowed overseas, where we could get [dollar] loans for 8% or 9%. If I had borrowed locally, the analysts would be saying that we were being foolish for not taking advantage of lower interest rates overseas." It seemed a no-brainer at the time. There seemed to be practically no currency risk -- the Thai baht had been informally pegged at 25-something to the dollar for years.

Besides, the loans were to be spent on productive projects. "We did not build huge towers or condominiums," says Chumpol. "We did not lend to property tycoons or people speculating in the stock market. We bought machinery, plants, equipment. And we didn't borrow because foreign banks were knocking on our doors with cheap credit. These were project loans, export-import bank loans specifically for imports of machinery." The money went to more cement-making facilities in Thailand and forays into chemicals, petrochemicals, paper and automotive parts, including small plants in China, Indonesia and the Philippines.

With the wisdom of hindsight, critics now say the Siam Cement group should not have moved so fast. Instead of catering to demand, they say, it was simply adding to supply in certain sectors. Asia already has a chemicals glut and the regional car-parts industry is also overcrowded. "You have to look at our expansion plans in the context of our national development strategy," responds Chumpol. "Thailand is a developing country. We need to produce things that we can sell abroad so that we can buy goods, services and technology from abroad. When we make things, we create jobs."

Like others in Thailand, the Siam Cement group did not hedge its loans by buying forward contracts to cover fluctuations in the exchange rate. "We could have bought insurance, but that would only be adding to the total cost," says the CEO. "Our government, our bankers, economists, even foreigners were telling us that the baht was stable, that there was nothing wrong with its fundamentals. We never imagined that the baht would be devalued. And if there was even a small chance of that happening, nobody, not even the most pessimistic, was saying that there could be a 30% or 35% devaluation."

What now? Nearly $1 billion of the Siam group's debts fall due within 18 months. Chumpol says the conglomerate has adequate cash flow to service these short-term obligations, though some of the loans may be rolled over. He is also seeking to restructure part of the long-term commitments, but has ruled out asset sales. That means more breathing room -- but also higher interest rates, as much as 10% to 11% on the foreign-exchange loans. Luckily, the group had scaled down some of its expansion plans in 1996. "I suppose they can sit back now and say, 'it could have been far worse,'" says an analyst with a European securities firm in Bangkok.

Still, "the next 18 months is going to be very turbulent," says Rattiya Tirapongporn of HSBC James Capel in Bangkok. "If stock-market conditions were better, they could have raised money through a rights issue, but that's not an option for them right now. Their cash flow is precarious, but they are a prestigious company and local banks would be willing to tide them over the tough times." Of course, Chumpol would be borrowing in baht this time around.


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