Post-1997 crisis property liquidator BAM
redefines itself as property developer
By Jon Fernquest |
Bangkok Commercial Asset Management Co (BAM) was founded after the 1997 Asian financial crisis as a state-owned company for selling off the assets of the no-longer operational Bangkok Bank of Commerce.
Over the last decade BAM has transformed itself into a company that purchases non-performing loans (NPLs) from the Thai banking system and then sells (liquidates) them.
As Thai banks adopt the new IAS39 accounting standards they are being forced to sell non-performing loans and assets to save on provisioning expenses.
Recently, BAM has started operating as a property developer. The details of this new business plan were provided in a Bangkok Post article this week.
BAM is owned by the Bank of Thailand's Financial Institutions Development Fund (FIDF). In the past, the Bank of Thailand has said it planned to sell its shares in in BAM to investors and list the company on the stock market.
Read more articles on non-performing loans.
Here is the article in full:
Renovation scheme helps BAM hit target
Extra efforts spur sales in tough times
KANANA KATHARANGSIPORN
Despite the sluggish economy, Bangkok Commercial Asset Management Co (BAM) achieved its sales target in the first seven months as an asset-renovation programme and aggressive marketing activities helped boost sales.
BAM president Bunyong Visatemongkolchai said two types of non-performing assets (NPAs) that generated healthy sales were agricultural plots, where marketing events helped to group them by location, and residential assets in which it had invested for renovation to improve their conditions.
It sold 80 plots of land at the Khao Yai Casa project worth 300 million baht during the Money Expo in Nakhon Ratchasima last February.
BAM also invested in renovation from cleaning to refurbishing buildings so they will be ready for new tenants. "If we don't do it, we can't sell the assets. This means not only poor sales but also higher expenses to maintain them," said Mr Bunyong.
BAM has 100 contractors ready to undertake renovation and decoration jobs.
Improvements to real estate before sale
The Hatairaj apartment development is one example of BAM's policy to upgrade living quality for purchasers through facility and infrastructure improvement.
Last week, BAM signed a contract with the homebuilder Royal House to renovate four houses in the Patra Nives housing project in Bang Ku Wat, Nonthaburi before handling more units.
"Our assets have very low prices but many of them are not in good condition and are not attractive to buyers. We have to make them look better," he said.
In the future, BAM will improve its renovation programme to focus on quality construction materials and more attractive decoration.
Mr Bunyong said BAM not only improved assets but also living quality through facility and infrastructure improvement.
Directly inviting developers to bid on properties
BAM also used a direct approach to attract potential or local developers to acquire large plots of land.
After inviting a handful of large developers in Bangkok and Chiang Mai to bid for a 96-rai site on Middle Ring Road in Chiang Mai with an initial appraised price of 165 million baht, BAM will announce the result within this month.
BAM generated sales of 7.3 billion baht as targeted in the first seven months of the year and half of them came from NPA sales. It expects to generate 11.7 billion baht by the end of 2008.
"This year the economy is worse than last year, but we can achieve our sales target," he said.
Purchasing power is declining but this helps boost demand for second-hand homes as prices are 30-40% lower than for most new homes.
Real estate a good hedge against inflation
At the same time, higher inflation has encouraged some people to invest in assets that have more future value such as second-hand properties and NPAs.
As of June 2008, BAM had 15,282 NPAs worth 39.87 billion baht, accounting for 24.8% of total NPAs held by local financial institutions worth 160.72 billion baht.
Over 70% of BAM's NPAs were land plots with 10,962 pieces worth 23.98 billion baht, followed by 1,256 condominium units worth 917 million baht, 1,137 townhouses worth 883 million baht, 879 single houses worth 1.58 billion baht and 499 shophouses worth 1.53 billion baht.
According to the Bank of Thailand, non-performing loans fell from 3.76% at the end of March to 3.43% at the end of June. Total NPLs also declined from 249.7 billion baht to 232.12 billion baht.
(Source: Bangkok Post, business section, KANANA KATHARANGSIPORN, 06-08-08, temp-link)
Vocabulary:
Bangkok Commercial Asset Management Co (BAM) - a state-owned company for selling off the assets of the no-longer operational Bangkok Bank of Commerce, founded nearly a decade ago, recently has started operating as a property developer (See website)
default, in default - fail to pay back a loan, as promised
non-performing loans (NPLs) - a loan that is in default or close to being in default (See article; See glossary)
non-performing assets (NPAs) - an asset such as real estate that has been purchased with a loan that is no longer being paid back
liquidate - sell an asset to get cash
IAS39 accounting standards, International Accounting Standard 39 - the international financial reporting standards for the valuation and reporting of financial instruments such as derivatives, loans, and employee option schemes (See Wikipedia on International Financial Reporting Standards)
provisioning, provisions, provisions against loan losses - putting money aside to pay for and solve future problems, an uncertain liability, uncertain when the liability will arise and how much it will be for (this can include costs for corporate reorganisation, legal cases, non-performing loans in a bank; See Wikipedia)
renovation - repairing and decorating an old building or house to improve it, so that it is in good condition again (See glossary)
a renovation scheme - a programme for repairing old buildings to improve them
target - what you aim to reach or achieve (See glossary)
hit target - achieve what you aim to achieve, reach your goal
as targeted - according to the goal they set in the past
spur - cause or encourage something to happen (See glossary)
spur sales - causes sales to increase
tough times - an economic slowdown, a sluggish economy (difficult for many companies and people to make money)
aggressive - forceful, determined, and eager to succeed
aggressive marketing activities
agricultural plots - pieces of land used for growing crops
refurbishing buildings - clean and redecorate a building to make it more attractive
tenants - renters (people an companies renting apartments, homes, offices, and buildings
undertake - do or carry out a task
upgrade - improve and make up-to-date (See glossary)
upgrade living quality
facility - buildings, equipment, or services provided for a special purpose (See glossary)
infrastructure - the basic services and facilities in a country such as water, electricity, transportation, and communication that make everyday life and business possible (See glossary)
bid on properties - offer an amount of money to buy some real estate
direct - when two things are closely connected
indirect - when two things are not closely connected
a direct approach - trying to achieve a goal immediately by your actions (do A and achieve C, rather than do A, which leads to B, which leads to C indirectly)
acquire - obtain, get
a handful of large developers - a small number of large developers
appraise - determine value after a thorough examination
appraised price - a price determined after a thorough examination
purchasing power - the amount of goods and services that your money can buy (inflations decreases purchasing power)
hedge against inflation - way of protecting your money and savings from inflation (if the interest rate you receive on your savings is not as high as the inflation rate, your savings will decrease over time)
