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The diminutive Indian whacked the ball hard and watched it disappear into the rough. After four months stuck in Vancouver his handicap was down to 18 and the course was getting a little too familiar. His hands were cold and he yearned to be back with his businessman and financier friends on the Navatanee course in Bangkok. Alas, the Canadian authorities had seized his passport and they weren’t planning to give it back in a hurry. Reflecting on happier days, Rakesh Saxena sat at the 19th hole and dreamed of the days when a round of golf with the right people could mean the start of another lucrative takeover deal for him to get his teeth into. It was at just such a game eight years ago that he first met Krirkkiat Jalichandra, then a cut-and-thrust financier who promised to fix up Saxena with a job at his bank, Bangkok Bank of Commerce (BBC). The name reverberated around Saxena’s head. It was the lucky break that had given him the chance to put together deals that would make him a household name in Thailand, as familiar to stock-watching taxi drivers as to the prime minister. His current notoriety was not quite what he had in mind. He languishes in Vancouver on C$1.25 million bail pending extradition proceedings on charges of embezzling Bt1.6 billion ($63.3 million). He whiles away his time playing golf and the foreign exchange markets, watched over by bodyguards you can’t be too careful when everyone in Thailand knows someone, who knows someone, who can hire a gunman on a motorbike for a few thousand baht. Back in 1985, Krirkkiat was sent into the ailing BBC by the Bank of Thailand (BOT) with a brief to sort it out after it had run into problems with bad debts following an economic crisis that forced the government to devalue the baht and restrict growth in bank lending to 18% a year. BBC had a reputation for conservatism, but Krirkkiat took a more aggressive approach. His appointment was doubly pertinent as he was already at the central bank, working his way up to be chief of the financial institutions supervision and examination department. His family were major shareholders in BBC, which was then chaired by his uncle, the late Mom Rachawongse Kukrit Pramoj one of Thailand’s most respected elder statesmen. Building a business relationship with Saxena was to enable Krirkkiat to put his bank at the forefront of Thailand’s mergers and acquisitions scene and pull it back from the brink of obscurity. Unfortunately, things got out of hand. Saxena had come to Thailand a few years before, having married a Thai-Chinese woman he had met while in Hong Kong. He began offering his treasury services to Bangkok financial institutions among the takers were Chase Manhattan, Citibank, Thai Farmers Bank and Thai Financial Syndicate, where he is reputed to have first met Ekachai Athikomnanda, later to become senior executive vice-president of BBC. Saxena also wrote a personal finance column for the Bangkok Post. He was soon moving in influential circles, playing golf at the prestigious Navatanee club. which was frequented by the country’s top bankers as well as senior military officers. Saxena’s talent for cutting a deal, even on the golf course, meant he was soon a well-known figure about town and his persuasive manner helped him put together a series of M&A deals. “He was a born deal-maker,” recalls a close friend. “Money was secondary. Doing the deal was what counted much more the honour.” He had apparently no formal training in finance, having been educated in Delhi before taking a master’s degree in literature at Cambridge. “The finance was picked up along the way. He’s got a fantastic memory and he’s very good with figures,” said the friend. Within a few years BBC, spurred on by the Saxena deal-making machine, was making innovative acquisitions accounting for around half the takeovers in the country by number. Doing the deals had a certain attraction of its own, which, some would argue, masked more realistic assessments of their viability. There was big money, big names Saudi arms dealer and businessman Adnan Khashoggi invested in many of Saxena’s deals and there was also the novelty factor in a country where M&A was not that common. How Khashoggi came to be involved with Saxena is shrouded in mystery and could not be explained even by those who knew him well in Thailand. It appears, however, that BBC lent Khashoggi money to make the takeovers. In January the Saudi tycoon bought 10% of Jalaprathan Cement, a company listed on the Stock Exchange of Thailand (SET), while Saxena bought 12.2% and other companies 17%. Khashoggi originally took a 22% interest in that company in 1994 as part of a Bt4 billion spending spree on three listed Thai companies, masterminded by Saxena. On that occasion Khashoggi roped in Prince Nawaf, the brother of Saudi’s King Faisal, as an equal partner in the Jalaprathan investment. The identity of the investors was all the more remarkable in the light of the simmering unease between Thailand and Saudi Arabia over the theft of $20 million worth of jewels from a royal palace in Riyadh by a Thai worker five years earlier. Parallel with the unveiling of the initial Jalaprathan Cement deal came the announcement of Khashoggi’s acquisition of a 47% stake in listed palm-oil producer Morakot, followed in March by a full bid for the company as a “strategic move into the food industry in India and the region”. The three-company package was completed by circuit-board manufacturer Semiconductor Ventures International (SVI), some 94.5% of which was acquired in a tender offer by a group led by Khashoggi that included Saxena’s sister-in-law Sunanta Hanworakiart. Having reported accumulated losses of Bt419.1 million as of December 31 1995, SVI now faces delisting from the exchange, as does Asian Footwear, a former BBC borrower. In 1993 BBC took an 18% holding in the sports-shoe manufacturer through KMB International, a canned-pineapple joint venture in which the bank had a stake. Consideration has also been given to the delisting of Morakot and of Earth Industrial, a company in which Ekachai Athikomnanda now holds a stake and which raised Bt300 million in new shares in April 1995 to repay bank debts, including Bt68.6 million owed to BBC. Earth Industrial changed its name from The Kader Company after a fire at its toy factory in 1993 killed 188 workers and injured 469 Thailand’s worst industrial disaster. By May this year, due diligence on another of Saxena’s takeover deals, Phuket Island plc, had been deferred after the breakdown of negotiations between Saxena and a mysterious potential buyer Prince Sourab, about whom no details can be traced. Grey and dubious deals In June, the stock exchange gave eight listed companies including Morakot and Asian Footwear one month in which to fire directors linked with BBC. The other companies, apart from BBC itself, were United Flour Mill, MDX, Bangkok Steel Industry, Thai Central Chemical and Thai Durable Textile. Almost from the beginning other players in the market had suspected all was not well. BBC had a reputation for doing “grey” and “dubious” M&A deals, says Kongkiat Opaswongkarn, president and CEO of corporate advisory boutique Asset Plus and a former managing director of Barings in Thailand. By that he meant that the viability and management of some of the businesses taken over by BBC was questionable and prices were too high, sometimes, he reckons, by as much as three times. Saxena’s deals for BBC went outside Thailand. In January the bank announced it was paying Bt1.25 billion for major stakes in six unnamed finance companies a Moscow bank, a Prague investment bank, a Kazakh bank, an Indian finance company, a New York brokerage and a Canadian financial consultancy. Saxena personally was taking a 50% stake in Russian bank and broker Effect Credit Joint Stock Commercial Bank with a view to extending his corporate advisory work in the Russian Federation. By March, BBC had unveiled a share swap in which National Credit Bank of Moscow would take between 5% and 10% of BBC’s shares in exchange for a share in the Russian bank, based on valuation. Despite his reservations about some of BBC’s M&A deals, Kongkiat was surprised when the full extent of the bank’s problems emerged in May during a bloody no-confidence debate in the Thai parliament. Not only were there massive bad debts, mismanagement, cover-ups and questionable lending practices, but the whole scandal threatened to bring down the government. The opposition party flourished leaked documents from the BOT revealing that BBC was effectively bankrupt. The debate sparked a two-day run on the bank by nervous depositors to the tune of around Bt10 billion, wiping out some of its provincial branches’ cash deposits. The government and central bank were accused of mishandling the whole affair. The “politically motivated” central bank had been aware BBC was in trouble since early 1995 but had not acted in earnest until it was almost too late, it was claimed. BBC’s loan portfolio by the end of last year was not a pretty picture. Some Bt78 billion of loans were considered high-risk or problem liabilities. Bad debts totalled Bt19 million, doubtful debts Bt19.73 billion and sub-standard debts Bt25.53 billion. The bad and doubtful debts, without provisions, whittled the bank’s assets down to Bt165.4 billion, against liabilities of Bt169.5 billion. Despite a BOT requirement that there be full provision for bad and doubtful debts, BBC had made provisions for just Bt3.25 billion. Next the opposition report turned to Saxena’s M&A masterpieces. A further Bt32.7 billion in BBC’s books was lent for various takeovers, and was considered a high-risk liability. Loan extensions had in fact risen in 1994 and 1995. “Most of the increased credits were extended by the headquarters to businesses in which the bank’s directors or executives or their nominees were directly and indirectly involved, as well as loans for takeover purposes,” said the Bangkok Post‘s translation of the leaked Bank of Thailand report. Almost Bt40 billion had been extended to directors, executives and their nominees at the time of inspection, of which Bt24.65 billion was categorized as “low quality” debt. There was worse to come in the opposition report. When the BOT inspected BBC’s books at the end of 1995, it found credit and contingent liabilities of Bt38 billion had been extended for taking over 22 companies. BBC had been the sole source of funds for the takeovers, some linked with politicians, and prices of securities placed as collateral for takeover loans were often below the tender offer price, claimed the opposition; provincial real estate collateral had been bought with overdrafts, and was apparently overvalued anyway. Loans were extended to BBC executives to buy the bank’s own shares in a series of previous capital increases, latterly in February 1995, when a total of Bt2 billion was raised and in July 1995 when Bt3 billion was raised. Crackdown on loans Such loans for share purchases were contrary to BOT policy and BBC had already been told to stop such lending. After the defiance of the second rights-issue loans, the central bank asked for explanations and gave BBC 90 days to recall them. Unsecured loans of $217 million had been extended to companies in Russia’s National Credit Bank group, some $55 million of which were apparently used by the Russian bank to buy BBC shares, and further money was lent to the group to meet interest payments. After defiance of another order from the BOT to stop lending to the Russian group, which included Essex Corporation Holding, Arcadia Capital Partners and the Savings Bank of the Russian Federation, the central bank ordered that any loans of more than Bt30 million had to be approved by the BBC credit extension board or executive board and reported to the BOT within 15 days. But a year earlier BBC’s board had empowered its president, Krirkkiat, and senior executive vice-president, Ekachai Athikomnanda, to approve unlimited loans, said the opposition report. In Thailand, the worlds of business and politics are inextricably entwined, linked by a web of family connections, money and, of course, golf club friendships. Saxena says he made donations, put at Bt250 million by some, to the controlling Chart Thai party’s election coffers, via nominees and a web of companies, allegedly to buy votes in the last general election. He denies, however, any direct contributions to former prime minister Banharn Silpa-archa, who was forced to resign after a second no-confidence debate at the end of September. An election has now been called for November 17. Undoubtedly the BBC scandal, along with the country’s economic woes, contributed to the government’s demise. Saxena’s message to the party now: “I supported you in the election campaign … just ensure me a free trial.” He is pragmatic about the political hand-outs. “You never know what’s going to happen when the government changes what you need, what you don’t need, whether you want to buy land, do business or get a licence. That’s part of the gamble.” Meanwhile, senior politicians who were members of “the group of 16” one of Chart’s many small factions are believed to have taken BBC loans. Saxena claims the loans were made before the members of parliament joined the government and stemmed from his wife’s family connections. He also points out that loans are a matter of public record. Nevertheless, they provided additional fire power for opposition leaders who say loans to the politicians were secured on “practically worthless” plots of land in the provinces, often with dubious title rights, and the money then used to buy stocks, including those in Saxena’s takeover targets. With the bank’s problems now out in the open, the Bank of Thailand was forced to act. It formed a five-member control committee chaired by former commerce ministry permanent secretary Bajr Isarasena and formally took over the running of the bank. Arrest warrants were issued in June for Krirkkiat, Saxena, Ekachai Athikomnanda, Ekachai’s secretary Pojanee Cholampee, Saxena’s Thai sister-in-law and a shareholder in many of the takeover companies Sunanta Hanworakiart, and Piset Panichsombat, former asset valuation chief of Colliers Jardine (Thailand). Before this happened, though, Saxena had faxed a last-ditch proposal to “restructure” BBC’s debt to the Bank of Thailand from Zurich, where he was on a regular business trip. “I am waiting for in-principle approval from the control committee and the Bank of Thailand so the whole issue can be cleared up before the weekend,” Saxena was quoted as saying in a local newspaper shortly before the arrest warrants were issued. Krirkkiat was also in Switzerland at the time the warrants were issued, saying he was visiting his sick mother, but was arrested at the airport on his return. He has denied the allegations. The five in Thailand were charged with embezzling Bt1.6 billion and abusing their authority to the detriment of the bank, and are now on bail pending court hearings. With the others already arrested, the Thai police were threatening to call in Interpol to track down Saxena, having apparently searched for him in Switzerland, London and Canada. Saxena, meanwhile, flew to Vancouver, from where he denied he was on the run and taunted: “If they really want to they can come and find me. I’m not running away.” Saxena has an office and apartment in Vancouver as well as business interests, which include Vancouver-listed Asean Holdings and Quadrant Financial Corporation. Holding company Asean Holdings, bought as a shell company by Saxena and Krirkkiat in 1992 and formerly known as Algonquin Minerals, reported net profit of C$2.4 million for the year to July 31 1995 on revenue of C$44.68 million, with its success being attributed to the acquisition of Doppler computer stores in Canada. The police finally did catch up with Saxena in Vancouver, where he was arrested and remains on bail, having hired top Canadian lawyers to fight extradition proceedings. “If I had the kind of money they say I have, I could leave Vancouver and go to Brazil or Argentina and they would never find me,” reasoned Saxena from his Whistler ski-resort base, from where he has masterminded a barrage of interviews with the Thai press, in between reporting to the local police every day. He now spends his time playing the markets in New York, Europe and Chicago, along with an occasional round of golf. He protests his innocence vigorously, but maintains he is unlikely to get a fair trial in Thailand. Whatever the outcome of the court cases, Saxena looks certain to drag some senior Thai figures through the mud as he goes, amid sorry tales of political vendettas, ministerial buck-passing and regulatory bungling. The BOT has taken its share of the flak for the BBC debacle, prompting the resignation of governor Vijit Supinit, at the request of both the prime minister and finance minister Bodi Chunnananda there had been allegations of foot-dragging and that Vijit had turned a blind eye to the BBC fiasco. The central bank’s independence in the BBC affair was called into question, as was Vijit’s political partisanship. So were his ethics, particularly in regard to his acquisition of shares in an unrelated finance company, Siam City Credit Finance and Securities (SCCF). In 1990 Vijit had acquired 40,000 shares in SCCF at par at a time when the company was planning to float. Vijit was a member of the Securities and Exchange Commission (SEC) which approved the listing, but later argued there were no specific Bank of Thailand rules forbidding an SEC official to make such share acquisitions. After six years with Vijit in charge, a new Bank of Thailand governor, London School of Economics graduate Rerngchai Marakanond, was appointed in July. The opposition party also alleged the prime minister had interfered in central bank operations over BBC, particularly with regard to the loans to politicians, and attacked the use of public funds to rescue the bank. Vijit is still embroiled in a court case with Ekamol Khiriwat, former SEC secretary-general, who was fired from the central bank in December and resigned from his associated SEC post the following day. There were “personal conflicts” between the two men which culminated in accusations that Ekamol had leaked confidential information. Ekamol has denied the charge and is suing Vijit and National Intelligence Agency director Pumarat Taksadipong for defamation. Meanwhile public prosecutors had still to decide whether Ekamol would be charged with abuse of authority. Ekamol maintained in court that the accusations of leaking information had been circulating since the time of former finance minister Tarrin Nimmanhaeminda, who had decided there was insufficient evidence to act on the claims. They were only acted upon wrongly according to Ekamol when Tarrin was succeeded as finance minister by Surakiart Sathirathai, with whom he had also had conflicts. Although not entirely clear, it appears that details about the financial health of four commercial banks, including BBC, were the subject of Ekamol’s alleged leaks. Picking up the pieces Surakiart himself resigned as finance minister in May during a political reshuffle, to be replaced by Bodi Chunnananda. Surakiart was also berated over delays in government intervention in BBC. The court cases look set to drag on for years but attention is now turning to the rehabilitation of BBC. Saxena has strong views on that too. “Unless every effort is made to rehabilitate BBC in a proper business-like manner and not on a political basis and day-to-day ad hoc basis, this situation of suits, counter-suits and criminal charges is going to get worse and worse,” he says. The central bank proposals to bail out BBC and get it back on its feet involve a Bt22.5 million increase in share capital. The same amount again is being raised from an issue of debentures, convertible into the new shares, most of which look set to be taken up by the Bank of Thailand’s financial institutions rehabilitation and development fund. The Thai Bankers’ Association has agreed to take 10% of the shares and debentures, which will be allocated among members in proportion to their deposit size. As a sweetener, the association has been told its members can offset their debenture and share acquisitions against future contributions to the rehabilitation and development fund. The central bank is also looking for new shareholders for BBC and has been negotiating with the Tantipipatpong family, which currently owns around 15%, to try to persuade it to raise its stake. Foreign investors are also being courted. The central bank fund is itself kept afloat by contributions from relatively healthy banks, which are now starting to complain about the unfairness of having to use their straitened profits to bail out less prudent institutions. “This is not a good time. Banks are facing their own difficulties,” says Thai Bankers’ Association general secretary Twatchai Yongkittikul. Association members have been reluctant participants in the refinancing. They feel this should be the last time,” he says. “Law enforcement should be stronger, otherwise getting efficient banks to help inefficient and fraudulent banks is not fair.” Despite the protests, credit-rating agency Standard & Poor’s said recently it believed the Thai central bank would continue to support troubled banks if necessary, although it said most Thai banks considered BBC an isolated case. Rating agency Moody’s foresaw potential problems back in January 1995 when a report on the Thai banking industry said: “Close intercompany links are rumoured to be the cause of non-performing assets at two of the sector’s weaker banks (Bangkok Metropolitan Bank and Bangkok Bank of Commerce). It is very difficult to quantify the degree of related-company transactions.” There may be more skeletons in the Thai banking cupboard. Just as the lawyers were settling in for a long hard fight on BBC, up sprang another international image problem for the banks. Bangkok Metropolitan Bank was fined $3.5 million by the US authorities in July and ordered to close its two branches there after an investigation uncovered “serious malfeasance”. Regulators said the bank and its officials engaged in a pattern of “serious unsafe and unsound banking practices and violations of the law”. The bank was accused of making loans knowing the stated purposes were false, and diverting proceeds for the benefit of bank “insiders” and falsifying records. Meanwhile, the BBC saga is set to run and run, parallel to campaigning for a general election, which was announced on the day that BBC reported a Bt970.9 million loss for the first half of this year. “The worst is not over until the BBC problem is settled. There is more to come of all this,” Saxena warned recently in a satellite-linked TV interview on Thailand’s Channel 11 a government-owned station. And one further opposition party question remains unanswered. Why was one of the police officers sent to arrest Saxena one of his former golfing pals? |
