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Bangkok's Skytrain
mass transit system opened to the public on December 5 - a
monumental structural achievement that very nearly came off the
rails at the last minute amid rows over share ownership.
Credit Suisse First Boston now finds itself the largest
shareholder in the build-operate-transfer company Bangkok Mass
Transit System Company (BTSC), and came within a hair's breadth of
ending up with majority control after a fierce battle to foreclose
on the debts of a Thai borrower.
The train system now seems to be running smoothly after some
initial chaos over ticketing, complaints by Thais about the lack of
music in carriages and motion sickness - possibly because of
unfamiliarity with moving at such speeds across the traffic-clogged
city.
The ride for the BTSC concessionaire has been less congenial,
however, after its parent company, listed property developer
Tanayong, pledged some of its shareholding in the project as
collateral against bank loans to CSFB and others, including Bank of
China, Dah An Commercial Bank, Grosvenor Far Eastern Selective
Fund, the Industrial and Commercial Bank of China, Kwangtung
Provincial Bank and Shanghai Commercial and Savings Bank.
Between them the banks lent Tanayong $80 million backed by
265 million BTSC shares in a one-year syndicated loan signed in
November 1996 and arranged by Schroders International Merchant
Bank. CSFB had exposure of around 5% of that loan.
A second loan for Bt3.1 billion ($81.6 million) from Siam
Commercial Bank was secured on a further 248 million BTSC shares.
CSFB later bought that loan from Siam Commercial for an undisclosed
amount, which CSFB maintained was not at a huge discount. When
interest fell into arrears and principal was not forthcoming the
banks put the shares up for auction under the loan agreement terms.
Sale of the first tranche of shares went ahead on November 5
despite attempts by Tanayong's controlling Kanchanapas family to
seek a court injunction to halt it. CSFB was the sole bidder for
the shares, and paid Bt14.20 per share, or a total of Bt3.75
billion for its 23% stake. The shares had a reserve price of
Bt13.50 each. The price paid by CSFB covered all but a couple of
million baht of the Bt3.7 billion owed on the loan, including two
years of accrued interest and the proceeds were distributed pro
rata to creditors.
But Tanayong president Keeree Kanchanapas maintained that the
auction was illegal and refused to authorize registering of CSFB as
the owners of the shares. CSFB is now challenging that move through
the courts
but has meanwhile said it is open to offers on the shares, or
is happy to hold them until an initial public offering planned for
next year.
"I would like to dispel some of the crazy notions. The
auction was publicized according to the Thai commercial code with
four weeks' lead time," says CSFB corporate communications director
Tom Grimmer.
The lack of other bidders was a function of the uncertainty,
believes one commentator.
"It was a bit of a poker game. I think people were sitting
back to see what was going to happen and there was going to be
considerably more interest in the second auction," he says.
"Obviously there were risks involved in this kind of transaction.
The system had not started operation; was the outfit worth what had
been paid for it?"
CSFB had brought in consultants from Hong Kong's mass transit
system to advise it on the issue, but as the second auction
approached, the battle heated up. Tanayong started off with 61% of
the Skytrain project but the sale of both tranches of pledged
shares would have diluted that to below the 51% holding Tanayong
was required, under the concession agreement, to retain until the
project became operational. Rumours of offers and rejections of
partial payments were reported but later denied by CSFB.
Then with just six days to go before the second auction on
December 7 - two days after the project's opening - Keeree came up
with the Bt3.5 billion cash to cover the loan and accrued interest
from "Chinese friends" and that sale was called off.
The identity of Keeree's white knights has not been revealed
although reports were of pawnshop-level interest rates on that
funding. He is now reportedly trying to raise money to buy back the
first tranche of shares.
Meanwhile beleaguered Tanayong has debt to equity ratios of
more than 30 times, according to Seamico Securities analyst Jason
York, who said in a recent research report: "One can see the
importance of the BTSC in the dire effort being made to save both
face and the company's [Tanayong's] future. The BTSC saga is
perhaps at the apex of Thailand's distressed debt problems."
Says another observer: "It is really a test case for the
legal system in Thailand. To have a viable distressed business you
have to have impartial courts. The fact that the Thai courts on
November 3 threw out the injunction spoke highly for Thailand.
"You do not see that very often in Asia, particularly in the
less-developed countries. It is indicative of something about the
changing nature of Thailand."
CSFB, once it can get registered on the BTSC books, stands
with a 23% stake in the Skytrain operation.
"We believe there is value in the shares," says a CSFB
executive. "We like the asset we bought but we are very concerned
about getting the asset registered.
"We think we can bring value and we have the investment
ability to put in new money," he says, adding that the bank wanted
to adopt a hands-on management approach and was keen to see
extensions to the line, escalators and more ticket machines.
The key to this will be the outcome of the continuing legal
battle over the share registration, but he warned that failure to
have the shares registered would have far-reaching effects and
would be "very scary for foreign investors if anyone wants to put
money into Thailand".
Gill Baker
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