MAY 12, 2000 VOL. 26 NO. 18 | SEARCH ASIAWEEK

Hard Sell, Tough Lessons
Thailand's reformers give a progress report
By JULIAN GEARING Bangkok

It is a steep learning curve when you're trying to sell off assets equivalent to Thailand's annual budget. So says Montri Chenvidyakarn, secretary-

general of the country's Financial Sector Restructuring Authority (FRA). In overseeing the disposal of a hoard worth $22.4 billion from 56 Thai finance companies shut down by the government during the Crisis, Montri has encountered several truisms. Lesson one: You get criticized whatever you do. Lesson two: Everyone is eager to learn your lessons.

After two years of frantic activity, FRA has sold 78% of its bad debt, good loans and everything from golf-course memberships to Mercedes-Benz cars. It is now tidying up loose ends for an effective shutdown by July. But some Thais continue to complain about a perceived lack of transparency, too many sales to foreigners and too many bargain-basement deals.

The transparency issue arose over a haul by U.S. investment giants Goldman Sachs and GE Capital under the joint-venture name of Thai Capital. It picked up business loans worth $1.3 billion for $564 million. The FRA was petitioned last year under the new Information Act to reveal the terms of the deal. The FRA fought against disclosure because the agreement was confidential. The Information Act won out and, when terms were revealed last March, nothing was found to be amiss.

Of sales to other countries, Montri is blunt: "If you don't allow foreigners in you will be saddled with bad assets. I don't understand the opposition. We allow them in to invest in other businesses. Are you going to stop using a Mercedes-Benz and start riding a bicycle made in Thailand?" He notes that local investor Kiatnakin Finance & Securities took large tranches of business loans, outbidding Goldman Sachs by nearly $80 million. "They paid high prices," says Montri. "More than 50%."

On the subject of selling cheaply, comparative figures speak for themselves. In just over two years FRA's efforts have realized 33% of total book value - or over-value, since the pre-Crisis boom inflated figures by as much as 50%. From 1990-1998 in the U.S., the Federal Deposit Insurance Corp. auctioned distressed assets for 28% of book value. The Resolution Trust Corporation, responsible for managing the U.S. savings and loans crisis, took seven years to realize a recovery rate of 49%. The Korea Asset Management Corp. has recovered 33% so far, but has disposed of just over 30% of assets. Then there's Mexico. After its deposit insurance agency managed a recovery rate of 12%, the government halted further sales.

Montri does admit some facets of Thailand's sell-off should have been han-dled differently. He inherited an October 1997 decree from the previous government that stressed speed and put a ban on micro-managing the loans. Hence, good loans were thrown in with bad. "The decree was wrong," says Arporn Chewakrengkrai, an adviser to Prime Minister Chuan Leekpai.

The FRA, then, had no option but to package loans into large tranches for a fire sale. Adds Arporn: "The FRA was under pressure to sell fast, so they put everything in big lots. So if Goldman Sachs buys at 20%, they can sell at 40%-50%. They [debtors] are more than happy to buy back. And Goldman Sachs gets big money." Selling in smaller batches, says Arporn, might have allowed more Thai companies to buy. But as Montri points out, when the FRA packaged assets in small batches it attracted only small bidders and low offers.

The speed of the divestment raised hackles as well. For example, some say the more than 500,000 vehicle hire-purchase loans were sold too quickly to attract a decent price. In all, contracts worth $1.3 billion were sold for $632 million. But Montri says there were "hidden costs" in hanging on to the loans: "We would have had to keep many people on the payroll. You would have had the problem of having to store the cars you repossess." He says GE Capital, which bought a large lot, struggled with 600 repossessed cars a month and 1,000 staff to work out the loans.

Criticism over the sale of business loans came mainly from debtors with political clout and those who wanted to bargain. "Borrowers believed they should be given some kind of sympathy because the business failures were not only attributed to their inability to run their own businesses, but because of the structural faults in the whole financial system," says Montri. Happily, the sale of residential mortgage loans - in large lots mainly to GE Capital and Lehman Brothers - raised $303 million from a book value of $647 million and attracted few complaints.

Now a new difficulty looms: The FRA must distribute to creditors the $4.9 billion raised so far. The State Council will decide whether the FRA should deal directly with creditors or should put the assets in the hands of the Bankruptcy Court. The former could see a swift resolution, the latter could drag on for years. A decision is expected this month.

As for what other countries can learn, Deputy Finance Minister Pisit Leeatham says a way of easing confusion could be to merge finance companies instead of closing them. He says, too, that countries having trouble attracting buyers should not rush into sales. For Montri, the lesson is now a mantra: There are no easy answers.

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