Broad Thai debt framework accord endorsed
Broad Thai debt framework accord endorsed
BANGKOK (Reuters): Thai and foreign bank creditors on Thursday endorsed a broad framework agreement aimed at nudging debt restructuring of the battered Thai corporate sector.
Dozens of bankers and business executives gathered at a hotel to lend support to the non-binding debt restructuring framework worked out with the Board of Trade and the Federation of Thai Industries which represent major debt-ridden companies.
Central bank governor Chatu Mongol Sonakul, chairing the agreement signing, said he hoped the 19-point framework would create a conducive environment for restructuring bank non- performing loans (NPLs).
Analysts have said Thai banks carry NPLs estimated at 1.6-1.8 trillion baht (US$39-44 billion) or about one third of their outstanding loans. They expected the problem loans to peak at over 40 percent in the first half of 1999 as the recession deepens.
The Thai economy, facing its worst slump in half a century, is projected to contract at least seven percent in 1998.
David Proctor, chairman of the Foreign Banks' Association, told the signing ceremony: "This is the first time such an undertaking has received such comprehensive support from all sides...The crisis facing the worldwide markets can only be overcome if all parties concerned work together."
Proctor said the framework requires troubled corporate debtors to provide detailed financial information to creditors to ensure that proposed restructuring plans are viable.
He said creditors, armed with full debtor information, were urged by the agreement to "standstill, meaning no acceleration of debt repayments and no charging of default interest".
The framework said any corporate debt restructuring should achieve a business, rather than just a financial, adjustment to further long term viability of the debtor.
It said priority must be given to rehabilitate assets to performing status. The paper included a rough timetable for restructuring deals for completion within three to five months.
Chatu Mongol said on Wednesday the Bank of Thailand would initially look into 20 major NPL cases, mostly involving multi- creditors, to try to speed up their restructuring.
The governor said he would monitor problem loans related to the troubled Bangkok World Trade Center project and the unfinished Baiyoke Tower in Bangkok's central shopping district.
His deputy Kitti Patpong-pibul told reporters he would seek a solution to problem loans generated by Thai Petrochemical Industry Plc. He said TPI has total debt of $3.8 billion.
Banthoon Lamsam, chairman of the Thai Bankers' Association, told the signing ceremony bank creditors should not use debt restructuring as an excuse for circumventing accounting rules.
Chatu Mongol said earlier that private bank creditors would be left to negotiate voluntary debt restructuring deals with clients.
He said the government did not impose arbitrary decisions on the private sector although Thailand's economic reform program endorsed by the International Monetary Fund left open possibility for the authorities to intervene.
The framework signed on Thursday said the state appointed Corporate Debt Restructuring Advisory Committee "may act as an independent intermediary...where cases are particularly difficult or where other efforts have failed. The committee may well be a catalyst to activate sluggish negotiations".
"I would be surprised on any central bank arbitrary role. The central bank will apply influence where it can...but at the end of the day, the private sector need to thrash out agreements by itself," said Proctor.
He welcomed a stipulation in the paper on equitable sharing of losses arising from debt restructuring. It said losses would be apportioned to reflect the legal standing of parties involved with equity holders taking the first hit before debt providers.
The Thai government has encouraged early corporate debt restructuring by providing tax incentives for such deals and by offering to help cooperative but cash-strapped banks raise capital.