Thailand Plans a Fire Sale
It is being billed as the biggest one-day sale in the history of the world.
On Dec. 2, the world’s leading investors will bid for the assets from 56 of Thailand’s once high-flying, and now shuttered, finance companies--more than $10 billion worth of loans secured by office buildings, golf courses, resorts and fallow rice fields.
It is fitting that this giant fire sale should be taking place in Thailand, the now infamous birthplace of the July 1997 currency crisis that has since crushed some of the world’s fastest-growing economies, toppled governments and sent a tsunami of fiscal uncertainty around the globe.
This city’s skyline of half-completed office buildings and rusting cranes remains a dramatic testament to the decade of reckless borrowing and building that helped power Asia’s double-digit growth yet also laid the groundwork for last year’s fiscal implosion.
But the December auction also signifies that Thailand is working its way out of its memorable morass, analysts say.
Foreign-investment companies like GE Capital, Lehman Bros., Goldman Sachs, Colony Capital and Koll Development Co., the Newport Beach-based developer, have armies of investigators here who are combing through the 14,000 loan files before submitting their bids, convinced that Thailand’s badly battered economy is indeed nearing the bottom.
“Thailand was the first to go down, and it went down hard, but you can actually do business there now,” said Howard Armistead, a senior managing director at Koll.
If successful, the December auction could help set the floor for prices in a real estate market whose problems eclipse the worst nightmares of Texans in the 1980s or Californians in the ‘90s.
That would spur other reluctant Thai banks and indebted companies to begin selling off their money-losing properties. They have been spurning frequent offers of 10 cents on the dollar.
“People are in a holding pattern,” said Tyler Mingst, vice president of Asset Plus Securities Co. Ltd. “No one wants to buy or sell anything until they know what the market is worth.”
Indeed, what is a Bangkok high-rise office tower worth in a market where nearly half the office space is vacant? How much will someone pay for a luxury condominium in a city that has at least 300,000 empty units and few banks willing to provide home loans?
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The likelihood that foreign money will play such a big role in answering these questions is unsettling to many Thais, who pride themselves on having escaped colonization yet now see themselves in danger of economic subservience.
“I am against the idea of allowing foreigners to take over while Thais are still weak,” said Amarin Khoman, head of a Thai transportation and agriculture company and an outspoken critic of the government’s market-opening measures.
Amarin and others want Prime Minister Chuan Leekpai to delay the December sale until the market improves and local investors are better positioned to compete. But the government insists it must proceed to reassure the international investment community that the country is serious about restoring its image.
“It’s like surgery,” said Amaret Sila-On, chairman of the Financial Sector Restructuring Authority, the agency in charge of liquidating bad debts. “We must cut it [the bad debt] out, close it up and turn it over to the medical doctor for recuperation. If we do it right, with a kind of clear and transparent operation, investors will have a better feeling of confidence in the financial system.”
Thailand’s economic vital signs are encouraging. The Thai currency, the baht, lost more than 40% of its value after the collapse of July 1997 and fluctuated wildly earlier this year. It has stabilized in the last month at about 36 to the dollar. The stock market has jumped dramatically during the time, led by local investors looking for a more lucrative place to park their money as interest rates dropped.
Even critics have conceded that Chuan is moving his country in the right direction, particularly in liquidating assets and reforming the banks.
Thailand’s internationally savvy leaders--who came to power with a mandate to change a fiscally corrupt system--are consistently given high marks for their willingness to buck powerful domestic interests and dismantle the barriers that have impeded foreign investment.
“There are going to be some political problems implementing these reforms, but our companies are convinced that the government is going to the floor for this,” said Ernest Bower, president of the Washington-based U.S.-ASEAN Business Council, who took a delegation of U.S. executives to Thailand last week.
In earlier auctions, GE Capital paid $530 million for auto loans valued at about $1.1 billion--representing a whopping 70% of the domestic market--and Lehman Bros. shelled out an additional $300 million to purchase 17,000 residential mortgages.
Other post-crisis acquisitions include ABN-AMRO Bank’s takeover of the Bank of Asia, the purchase by Britain’s Tesco of a controlling stake in the Lotus Supercentre chain and a $650-million investment by financier George Soros and others in the Nakomthai Strip Mill.
Thailand is far from being in the clear. While exports are on the upswing, aided by the depreciated currency, the economy is still expected to shrink by as much as 10% this year and might continue to contract next year before hitting bottom. Unemployment has reached 3 million and is rising, as more companies are forced out of complacency or into bankruptcy.
Even Mother Nature is on the wrong side. A drought has left Thailand’s water levels dangerously low, which means a cutback in the irrigation supply and fewer crops for farmers, who were counting on extra money from exports.
Some fear that as the economy improves, Thailand is backsliding on some reforms. During a recent visit, officials from the International Monetary Fund reportedly chided the government for not moving faster to put more teeth in the foreclosure and bankruptcy laws.
But Surin Pitsuwan, the Thai foreign minister, reminds critics that transforming a developing economy will be slow and chaotic if it is handled in a democratic manner.
“We try to explain to our friends and our creditors that precisely because it is a democratic system, we cannot be swift,” he said. “If you want transparency and accountability, it has to be slow.”
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Getting Better in Bangkok
Thailand - the spark for the Asian economic crisis when it devalued its currency in July 1997 - has seen its financial markets recover from their worst levels. But it will be a long road back for stock prices and for the baht. Monthly and Friday closes for the main Thai stockindex and for the baht’s value per dollar:
Stock Exchange of Thailand’s main index
January 1996: 1,410.33
Friday: 333.59
Thai baht per U.S. dollar
January 1996: 25.34
Devaluation
January 1998: 53.75
Friday: 36.86
Source: Bloomberg News
