Mekong Utility Watch

TFB defends takeover of ailing Phatra Thanakit

The Nation
June 23, 1998

Note: Phatra Thanakit is one of the equity holders in the proposed NT2 dam.

THAI Farmers Bank President Banthoon Lamsam reiterated Monday that the acquisition of Phatra Thanakit Plc will benefit all parties involved as it will likely lessen the financial damage.

TFB Monday announced it will tender for 251 million shares of the finance company at Bt4.50 apiece, or a total value of Bt1.156 billion, to increase its stake in the firm to 100 per cent from 51 per cent. The takeover will also give the bank stakes in Phatra Securities Ltd (51 per cent) and Thai Farmers Asset Management Ltd, both owned by Phatra Thanakit.

Following the tender offer, the bank plans to strip Phatra Thanakit’s good assets while its bad assets will be transferred to the ”bad bank” which should complete the liquidation process within 2-3 years.

”The market conditions have drastically changed. If Phatra collapses, all will immediately incur losses. Yet, our method will create losses only if the bad loans cannot find buyers after 2-3 years.

”The takeover took place because the situation had become fragile. The move was aimed to do away with the company,” Banthoon said in a press conference.

The bank will delist Phatra Thanakit from the Stock Exchange of Thailand when the plan has been approved by the finance company’s shareholders who will convene at the extraordinary shareholder meeting on June 16. Asset classification will begin soon after with all good assets shifted to a newly-established company. The bank will then approach strategic partners for capital injection in the new company and and apply for a ”superfinance” licence from the Bank of Thailand. All procedures are expected to be completed by end of the third quarter this year.

Banthoon denied speculation that the bank had bailed out its subsidiary over fears of market havoc if it was allowed to go under.

”We are not bailing it out. We are getting stakes in a securities company and a mutual fund company. We move in collaboration with the authorities to stabilise the system. If the system is preyed on, we’ll also be in trouble,” he said.

Phatra Thanakit was one of top five finance companies before the crisis. Weakening economic conditions have led to gradual asset deterioration among most Thai financial institutions. Phatra Thanakit was no exception with its non-performing loans rising from Bt12 billion at the end of last year to Bt20 billion at present.

The bank and the Financial Institutions Development Fund will guarantee deposits in Phatra Thanakit and TFB’s loans to the finance company will be protected by the FIDF with support from the Bank of Thailand. The deal involved FIDF as Phatra Thanakit had borrowed from the institution, though less than its equity of Bt9 billion.

The consolidation was expected since Phatra Thanakit sold a 49 per cent stake in Phatra Securities to Merrill Lynch International Holdings. A source in the finance company said then that an interesting move would soon happen and it could concern its long-time alliance Goldman Sachs & Co to a certain extent.

The bank is spending a relatively small amount for the stakes in the three companies. In its press release, the bank said it will spend Bt1.16 billion for a 51 per cent stake in Phatra Thanakit, Bt1.37 billion for Phatra Securities at book value, and Bt192 million for TFAM at investment cost. The bank’s current investment in Phatra Thanakit is about Bt6 billion.

Stock analysts said the Bt4.50 offering price for Phatra Thanakit’s shares is well below the company’s present book value of around Bt12. According to Banyong Pongpanich, executive director of Phatra Securities, inclusive of revenue from the gain on disposal of Phatra Securities, the book value would be Bt17.

Rejecting the low offering price, Phatra Thanakit shareholders Monday dumped their stakes, sending the share price to Bt4.10, or 80 satang below the closing price in the morning session.

Though the deal enables TFB to become a universal banking empire, Banthoon still has a dim picture for the future.

Asked how the financial crisis will end, Banthoon flatly said ”No one knows.”

Categories: Mekong Utility Watch

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