Asia Times: ANALYSIS: Time for investors to jump in



	May 27, 1999	atimes.com

Southeast Asia

ANALYSIS: Time for investors to jump in

BANGKOK - Some 18 months into Asia's financial crisis and the subsequent economic downturn, creditors may finally have legal recourse to recover their debt.

Lenders have until now been disadvantaged by the length of time taken to implement or toughen appropriate legislation. The delay has given debtors an opportunity to hide assets and/or strip them from their companies.

Barry Metzger, managing partner of Coudert Brothers - and until January, the Asian Development Bank's general counsel - says that following the introduction of new bankruptcy laws in Thailand in March, a number of major Thai companies have agreed to reschedule their debts. Previously, Metzger says, there was very little progress in re-negotiation of defaulted debt. Thai Petrochemical Industries (TPI); Fuel Pipeline Project Company (FPT) and Ucom (a telecommunications group) are among those agreeing to reschedule.

The settlements could set a benchmark and establish what might be described as a range of acceptable solutions - in terms of the haircuts that bank creditors will have to take or are prepared to take, the levels of equity that owners will have to give up as part of the settlements, and the agreements that have to be made in terms of asset dispositions of non-core assets.

Aside from the amendments to Thailand's weak bankruptcy law, Metzger says recent debt settlements may also have been ''influenced by the recognition that the foreclosure of law would soon be enacted into law''. Metzger believes there may now be an acceleration in debt settlements in Thailand.

While the Thai government has made arrangements with the Paris Club to re-schedule public sector debt, it is difficult for Metzger to give an overview of exactly where things stand in the renegotiation and repayment process of commercial debt.

''In Japan and Korea, substantial progress have been made towards resumption of interest payments and principal payments - even if the principal payments involve a re-scheduling. In Thailand we're just seeing the first signs of substantial progress with transactions like TPI and Ucom.'' Predictably, in the face of continuing instability, Indonesia has made little or no progress.

As the pace of restructuring steps up, more indebted Asian companies will offload non-core assets. ''We are just beginning to see a massive wave of new foreign investment into the crisis economies in response to the strategic investment opportunities that arise from a restructuring of the corporate and financial sectors in these countries,'' says Metzger.

''Prices have come down a lot, but the exchange rates in a number of these countries have strengthened and are expected to either continue to strengthen or to remain at current levels. The perception of many investors is that the exchange rate is as low as it is going to get. This realization - which came ''literally within the last several weeks'' - is the reason for the decision that now is the time to move forward in Japan, Korea, and Thailand, and possibly also in the Philippines.

''The window of opportunity is defined by the balance of this year and probably into and including most of next year,'' says Metzger. Investors in Asia now will improve their own international competitiveness, he says.

One of the most significant spin-offs of the crisis in Indonesia is the unravelling of power purchasing agreements which Indonesia signed with independent power producers (IPPs). While the ADB offered the Indonesian government assistance in developing a strategy for re-negotiation of IPPs, Metzger says the government authorities ultimately decided not to take any external assistance because they wanted to ensure they had as much latitude as they felt necessary in negotiations.

''There is no question that the IPPs all have to be re-negotiated. The assumptions on which the contracts were originally based are no longer applicable because of the meltdown of the economy,'' says Metzger.

''The question is not about whether the Indonesian government is tearing up the contracts - because even if you have the best contract in the world, if the party on the other side of the contract is bankrupt, you cannot make a stone bleed. One finds in business all over the world that parties which have the strongest of legal contracts will reluctantly renegotiate when the other party is in severe financial difficulty - and that's what we're seeing in Indonesia. Most of the IPP owners are prepared to renegotiate provided the terms are ultimately reasonably acceptable to the private parties because, effectively, PLN [the government-owned utility company] is bankrupt."

The contracts are being negotiated on a case-by-case basis and the compromises could include an extension of the terms of contract. (PLN was contracted to pay up to 8.5 U.S. cents per kilowatt hour for power.)

''There's no question that the tariffs will have to come down,'' says Metzger. ''The government has said that everyone must share the pain, and that means realizing lower rates of return and suffering some losses."

(Asia Pulse/Asia Today)

back to the top

©1999 Asia Times Online Co., Ltd.

Southeast Asia Sex News | Asian Sex Gazette