Thailand's bankruptcy
laws and foreign investors
Questions raised by the TT&T bankruptcy case
By Jon Fernquest 
Thailand's
bankruptcy laws have evolved
significantly since the 1997 crisis. Many questions are raised by the TT&T bankruptcy case that is currently unfolding in Thailand right now.
What happens then the subsidiary of a large company goes bankrupt?
Can the larger company raid the customer-base of the subsidiary before it enters bankruptcy and take away all of the subsidiary's customers? Or threaten to do this?
Shouldn't creditors as debtors have a higher priority claim on the subsidiary's assets than the parent company which only holds a lower priority equity claim.
That debt claims are higher priority than equity claims is fundamental to the defintion of debt and equity.
Should Thai creditors receive better treatment than foreign creditors under bankruptcy law?
Should the nationality of creditors even matter?
If it does matter, then might this be a negative incentive for foreign creditors in the future? Perhaps raising risk and interest rates as well as making credit more difficult to find?
(Photo on right of old-style fixed line telephone)
Nationalist overtones
The TT&T bankruptcy seems to resemble the long Thai Petrochemical Industry (TPI) bankruptcy saga in its nationalist overtones.The long drawn out bankruptcy of Thai Petrochemical Industry (TPI) is the most famous bankruptcy case in Thai history. Before the crisis the Leophairatana family ranked among the top 5-7 business families in Thailand. TPI was run largely as a family business without professional managers and and without detailed information being released on the firm's debt. When the crisis hit TPI revealed that it had owed US$3.2 billion to 400 different creditors and the company began a long descent into bankruptcy and riding itself of the Leophairatana family that only ended in 2007 (See Pasuk and Baker, Thai Capital After the 1997 Crisis, 44-46).
Along the way the nationalist card, Thais versus foreigners, was played repeatedly and in the end to no avail. As one article described the case:
The
troubled relations between Thai Petrochemical Industry PCL (TPI) and
its foreign creditors can be attributed to serious cultural
differences. Western financial institutions believe that Prachai
Leophairatana, owner of TPI, is out of touch with the reality that
anyone who cannot pay their loans must forfeit their companies. Prachai
counters that bankruptcy laws are foreign concepts which are unfair to
debtors since they allow mere service providers to take property away
from their rightful owners. TPI is seen as a bellwether for Thai
corporate restructuring, while Thailand is supposed to lead
restructuring efforts in Asia. (Source)
Or as banks opined:
Local
bankers say any deterioration in creditors' rights would lead to higher
funding costs for Thai companies in the future, with both Thai and
foreign banks demanding a higher premium to compensate for potential
risks...the bulk of our economy is tied with the global market. In the
end, the people who will be affected the most will be future
borrowers''...One foreign bank, a creditor of TPI, was even more
direct, saying the case would force a complete evaluation of lending
plans in the future....The TPI case has widely been highlighted as a
test case of Thailand's bankruptcy regime and commitment to legal
reforms (Source: Bangkok Post, business, 20-06-2003)
When foreign investors invest in a country there is always the risk that they will be treated differently from the people who live in the country.
One would expect such a risk to affect: 1. the availability and 2. the cost of foreign investment funds (both debt and equity funds).
The greater the risk, the greater the cost and lower the availability.
Baiting Foreigner investors might be a good short-term strategy for an individual firm to garner public sympathy, but it might well do long-term damage to investment in Thailand.
COMMUNICATIONS
Jasmine warns of TT&T coup
By SRISAMORN PHOOSUPHANUSORN12/05/2009
Jasmine International Plc, the parent of TT&T Plc, has threatened to transfer all of its affiliate's broadband customers to its own network if TT&T does not win approval from its creditors to manage its own debt rehabilitation.
The threat came after TT&T's creditors demanded P Planner Co conduct the business rehabilitation, which could allow foreign creditors to take over the company and sell it for profit.
[Comment: Are all the creditors foreign? Why would a foreign creditor be more likely than a Thai creditor to sell the business? ]
The integrated communications service provider also blamed creditors for squeezing TT&T's budget, which could lead to additional layoffs, said a TT&T executive who asked not to be named.
Jasmine International
- a
telecommunications company in Thailand, at first a contractor in
telecommunications projects for government agencies and state
enterprises, particularly the Telephone Organization of Thailand and
the Communications Authority of Thailand,
after a major restructuring in early 1997 a holding company
for all concessions acquired by the group, deriving steady and
profitable incomes from these concessions (See website)
TT&T - one of two companies that offers fixed line telephone lines, also offers broadband internet (See website)
transfer X to Y - move X to Y
an affiliate - a company connected with or controlled by a larger company
broadband - high-speed data transmission used for high-speed Internet access, fast enough to support applications such as streaming video
affiliate's broadband customers
rehabilitation - improve condition so that it can operate again
debt rehabilitation, business rehabilitation - improve the condition of a company by reducing its debt so that it can begin operation again
creditors - those who are owed money
integrated - combined so that they operate as one unit , one whole
integrated communications service provider - a company that provides combined telephone and internet service
blamed X for Y - said X caused bad thing Y to happen
squeezing TT&T's budget - decreased TT&T's budget (making it more difficult to operate)
layoffs - people who lose their job because business is bad
TT&T - one of two companies that offers fixed line telephone lines, also offers broadband internet (See website)
transfer X to Y - move X to Y
an affiliate - a company connected with or controlled by a larger company
broadband - high-speed data transmission used for high-speed Internet access, fast enough to support applications such as streaming video
affiliate's broadband customers
rehabilitation - improve condition so that it can operate again
debt rehabilitation, business rehabilitation - improve the condition of a company by reducing its debt so that it can begin operation again
creditors - those who are owed money
integrated - combined so that they operate as one unit , one whole
integrated communications service provider - a company that provides combined telephone and internet service
blamed X for Y - said X caused bad thing Y to happen
squeezing TT&T's budget - decreased TT&T's budget (making it more difficult to operate)
layoffs - people who lose their job because business is bad
TT&T recently cut 10% of its entire workforce, and relocated 700 staff to its broadband arm, Triple T Broadband, in which Jasmine International owns 91%.
TT&T's creditors saw the move as a defensive strategy to protect Jasmine from the future risk of losing operational control of the firm if P Planner oversaw the refinancing.
[Comment: Jasmine can legally do this?]
workforce - all the
employees of a company
relocated - moved to a new place
the broadband arm - the part of the company that offers fast internet (broadband)
defense - protecting from loss or damage
a defensive strategy - a long-term plan to protect from loss or damage
losing operational control - did not control the day-to-day operations of the business anymore
refinancing - getting new funds to operate the business
oversaw the refinancing - directed getting new funds
relocated - moved to a new place
the broadband arm - the part of the company that offers fast internet (broadband)
defense - protecting from loss or damage
a defensive strategy - a long-term plan to protect from loss or damage
losing operational control - did not control the day-to-day operations of the business anymore
refinancing - getting new funds to operate the business
oversaw the refinancing - directed getting new funds
"We needed to cut the jobs because the creditors provided us with only 80 million baht per month to keep operations running, despite the fact that we need up to 250 million baht to make ends meet," said the executive.
"Adding to the flagging economy and shrinking fixed-line revenue, the average revenue per user is now below 300 baht per month. We had no choice but to lay off employees to continue our businesses."
Creditors now hold 1 billion baht of the company's cash, the source said.
[Comment: What does this mean? Creditors have not given money that they promised to give?]
TT&T is undergoing a rehabilitation plan to refinance its debts of 19.87 billion baht, of which foreign hedge fund-related losses accounted for 60%.
make ends
meet - make enough money to survive (buy necessary food,
clothing, and shelter)
a flagging economy - a slow economy (with reduced sales and incomes)
fixed-line, fixed line telephones - traditional phones at home and business with a "fixed" telephone "line" meaning not "mobile"
shrinking fixed-line revenue - decreasing fixed-line revenue
lay off employees - taking jobs away from people because of slow business
a flagging economy - a slow economy (with reduced sales and incomes)
fixed-line, fixed line telephones - traditional phones at home and business with a "fixed" telephone "line" meaning not "mobile"
shrinking fixed-line revenue - decreasing fixed-line revenue
lay off employees - taking jobs away from people because of slow business
Last month, the Central Bankruptcy Court rejected TT&T's proposal that it should manage its own rehabilitation plan.
The official receivers of the Legal Execution Department had previously approved TT&T to oversee its rehabilitation. That decision was supported by TOT Plc, the state telecom enterprise that holds the TT&T concession.
The court ordered TT&T to hold another creditors' meeting within 40 days to put the matter to the vote once again.
"If TT&T is not chosen as the planner, Jasmine intends to transfer Triple T's broadband customers to its own accounts," said the executive.
"Jasmine will not let foreigners take over Triple T as the affiliate is majority-owned by the company," he said.
[Comment: What if the creditors were Thai? Under bankruptcy creditors have higher priority than equity holders, so how could Jasmine legally make this demand? Because the creditors are foreign?]
official receivers - someone given the
responsibility of looking after the assets of others (custodial
responsibility), in this case the assets of a bankrupt firm
TOT - a Thai state-owned telecommunications company. Originally established in 1954 and corporatized in 2002, TOT used to be known as the Telephone Organization of Thailand and TOT Corporation Public Company Limited. TOT's main line of business is fixed line telephony, although it has several other businesses, including mobile telephony. (See Wikipedia)
an enterprise - a company
a state enterprise - a government owned company
a telecom - a telecommunications company: phone and internet service
state telecom enterprise - a government owned telephone and internet company
a concession - official permission from the government to do a certain type of business
holds the TT&T concession - owns the TT&T concession
put the matter to vote - decide about something (the matter) by using a vote
accounts, sales accounts - the customers of a company,
majority owned by the company - most of it is owned by the company
higher priority - more important, first in line, gets money before others
equity holders - those who own stock shares in the company
TOT - a Thai state-owned telecommunications company. Originally established in 1954 and corporatized in 2002, TOT used to be known as the Telephone Organization of Thailand and TOT Corporation Public Company Limited. TOT's main line of business is fixed line telephony, although it has several other businesses, including mobile telephony. (See Wikipedia)
an enterprise - a company
a state enterprise - a government owned company
a telecom - a telecommunications company: phone and internet service
state telecom enterprise - a government owned telephone and internet company
a concession - official permission from the government to do a certain type of business
holds the TT&T concession - owns the TT&T concession
put the matter to vote - decide about something (the matter) by using a vote
accounts, sales accounts - the customers of a company,
majority owned by the company - most of it is owned by the company
higher priority - more important, first in line, gets money before others
equity holders - those who own stock shares in the company
Triple T obtained an operating licence from the National Telecommunications Commission to provide broadband internet services. Jasmine has so far invested 3 billion baht in Triple T for installing the network.
The company planned to spend an additional 2 billion baht over the next two years to expand capacity to 900,000 accommodate up toports.
Triple T expects the number of its broadband subscribers to reach 700,000 by the end of this year, from 400,000 last year. It targets a subscriber base of 1 million in 2010.
However, the source said Jasmine would continue leasing the broadband network to TT&T if they agree on an acceptable fee.
If not, the company would transfer the customers to its own network.
operating license -
permission from the government to do business
National Telecommunications Commission (NTC) - the first independent state telecommunications regulator in Thailand, regulates all telecommunications services, formulates a master plan, sets criteria and categories of telecommunications services, permits and regulates the use of spectrum for telecommunications services and grants licenses to telecommunications operators (See website and policy)
capacity - the maximum number of internet connections or users that the system can handle
expand capacity - increase the maximum number of internet connections or users that the system can handle
accomodate up to Y - can deal with up to the amount Y, over Y cannot deal with
ports - internet connections
broadband subscribers - people who pay monthly fee to receive a fast internet (broadband) connection
leasing - allowing the use of something for regular payments of money
an acceptable fee - receive an amount of money that is enough
National Telecommunications Commission (NTC) - the first independent state telecommunications regulator in Thailand, regulates all telecommunications services, formulates a master plan, sets criteria and categories of telecommunications services, permits and regulates the use of spectrum for telecommunications services and grants licenses to telecommunications operators (See website and policy)
capacity - the maximum number of internet connections or users that the system can handle
expand capacity - increase the maximum number of internet connections or users that the system can handle
accomodate up to Y - can deal with up to the amount Y, over Y cannot deal with
ports - internet connections
broadband subscribers - people who pay monthly fee to receive a fast internet (broadband) connection
leasing - allowing the use of something for regular payments of money
an acceptable fee - receive an amount of money that is enough
(Source: Bangkok Post, business, 12/05/09, Jasmine warns of TT&T coup, SRISAMORN PHOOSUPHANUSORN, link)
