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Thai Loan Auctions May Disapoint

December 11, 1998

BANGKOK, Thailand (AP) _ Thailand will probably be disappointed at the returns generated by next week’s auction of business loans held by 56 finance companies that the government shut down last year, analysts said.

The auction of $10.2 billion worth of loans on Tuesday is considered a major step toward restructuring Thailand’s shaky financial sector, which is riddled with bad debt totaling as much as 40 percent of all loans.

Thailand is in the midst of its worst economic crisis in modern times after a failed defense of the country’s currency, the baht, last year in which the central bank squandered nearly all its foreign reserves.

But fund managers and analysts told Dow Jones Newswires that while they believe there will be plenty of bidders next week, their offers won’t match government expectations of 40 percent. Some brave investors, however, could end up with high-risk, high-return loans for prices as low as 20 cents on the dollar.

``It looks like they will have a lot of participation. Foreign houses are interested in repackaging the assets for resale,″ said Vana Bulbon of Prudential Portfolio Managers Asia.

But others said failure to push through reforms of antiquated bankruptcy and foreclosure laws, now expected to gain parliamentary approval in March, could drive down both prices and the number of bidders.

The auction ``has focused people’s minds on what is really a huge problem in Asia,″ said Damien Wood, credit research director at Barclays Capital Asia Ltd. in Hong Kong. ``There is no discipline for borrowers, no legal system to support you.″

Thai Finance Minister Tarrin Nimmanhaeminda has said an average return of 20 percent would be unacceptable.

Montri Chenvidyakarn, assistant secretary general of the state Financial Sector Restructuring Authority, or FRA, which is reponsible for the liquidation of the finance companies, said the rehabilitation of the assets is more important than price, however.

``If we get lower than expected but acceptable prices, and the investor decides to invest in the economy on a long-term basis, that will offset any losses,″ Montri said.

Montri said he personally would not miss the absence of investors who just wanted resell the loans and that Thailand would benefit more from an investor who will try to rehabilitate the projects behind the loans. Many of the loans are to property developers.

``We would like them to manage the assets,″ Montri said, working with the former developers or a new project manager to bring a viable real estate development project back to life, for example.

If the winning bidders ``can see a way to put the distressed assets to work it will generate a lot of income and benefit the economy as a whole,″ he said.

A secondary market for the resale of the problem loans will be a step forward from the current state of affairs. Assets worth more than $19.4 billion have been frozen for a year and a half since the central bank first suspended the operations of the finance companies.

The FRA began small-scale auctions of movable property and securities earlier this year.

The Thai government and the International Monetary Fund, which is monitoring a $17.2 billion assistance package, have forecast a return to positive gross domestic product growth in the second half of 1999, after a 7 percent contraction this year.

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