Nothing is ever quite what it seems in Thailand, as ING Bank learnt the hard way recently. A main board director flew from Amsterdam late last year to have lunch, shake hands and return smiles with executives at Thailand’s eighth-largest bank, Siam City Bank (SCIB). A memorandum of understanding (MOU) was signed under which ING would buy a 10% stake in the Thai-listed bank for Bt1.32 billion ($30 million) as part of a recapitalization.
Three months later, ING country manager Jan Cherim is left “agape” by the deal, which rapidly turned into a fiasco when SCIB’s Bt11 per share rights issue an integral part of the ING agreement – sank without trace. Given the Thai bank’s Bt5 market share price at the time the 5% take-up was hardly surprising.
“The MOU had a number of conditions, including the most important: in the forthcoming domestic rights issue existing shareholders would not only come up with their own allocations, but if smaller shareholders stayed away they would mop up additional amounts,” explained Cherim. “Confirmation was reported to us, which was not contradicted by representatives of the government on the board, that the government would be doing their bit as well,” he added.
The government, through the Bank of Thailand’s Financial Institutions Development Fund, owned 8.54% of SCIB. In the event, nobody signed up for anything at all, including the Bank of Thailand. Shortly after that the MOU timeframe elapsed and the share issue never happened.
Another key factor in the collapse of the plan was the appointment – for 10 days – of SCIB president Som Jatusripitak as commerce minister to the previous Chavalit Yongchaiyudh government. This requires the individual to resign from his business positions and the usual practice is that he returns to his old company in an honorary position after public service. This was the case with former finance minister Thanong Bidhaya, who left Thai Military Bank to become finance minister for six months. He returned as a senior adviser and was very much in evidence again as an influential player. Not so apparently, with Som, who seems to have taken a less high-profile stance. His absence was a key factor in undermining confidence in the deal, believes Cherim.
The ING saga stands as a cautionary tale to foreign banks looking to get a foothold in the Thai market by taking stakes in domestic banks. Warns Cherim: “Due diligence is a lot of work and if someone has a large branch network and bad IT it’s horrendous.”
Bankers were sceptical of a similar deal in which Citibank was planning to take a 50.1% stake in First Bangkok City Bank (FBCB) with an eye to tapping into the latter’s 100-strong branch network. Citibank is currently restricted under Thai law to one branch. Their doubts were justified when Citibank announced in February it was suspending its due diligence on FBCB a week after the central bank took control of FBCB and Siam City Bank on the grounds that they had failed to recapitalize as required to cope with growing non-performing loans.
At the time of the announcement, FBCB and SCIB shares were Bt2.90 and Bt0.20, respectively. The Financial Institutions Development Fund will convert its Bt32 billion of debt into equity of FBCB, with the result that it will hold a 99% stake in the bank, after the bank was ordered to write down existing shareholders’ equity to Bt10 million from Bt10 billion. Meanwhile, SCIB was ordered to reduce existing equity from Bt6.2 billion to Bt5.5 billion, before a new recapitalization.
Citibank maintains its due-diligence programme was only “suspended”. For ING’s part, Cherim said: “The deal had been contemplated three months ago and conditions shifted very fast. The existing shareholders allowed our MOU to lapse – we did not walk away from it. We had a deal and we were enthusiastic about it.”
An undeterred Cherim is still looking for a deal, juggling ING’s varied interests in insurance and fund management, as well as banking. Under the original plan, ING would have had an option to buy a further 10% stake in SCIB. Ironically, ING already has a 25% stake in another SCIB joint venture, Siam City Asset Management.
The Bank of Thailand has said it will review foreign ownership of domestic banks above the usual 25% limit, and it’s likely majority ownership would not be a problem. Gill Baker
