173 Million New Shares Part of Italian-Thai Development's Debt Revamp by Phairath Khampha 31 December 2001 Italian-Thai Development Plc, Thailand's biggest construction company, included an issue of 173 million new shares in the 14-billion baht debt-restructuring plan that it submitted to creditors on December 24, 2001. Most of the new shares were issued to the creditors. The plan also favoured the company's major creditors including Siam Commercial Bank. The company's cash flow was expected to improve significantly with the award of a contract worth 36.67 billion baht to construct the main passenger terminal and concourse of the Suvarnabhumi international airport. Italian-Thai and its Japanese partners in the consortium, mainly PCI-Asia Inc., began construction early in December and the job was expected to take 36 months to complete. The company also intended to bid for a runway project worth three billion baht at the new airport. 123 million of the 173 million new shares would be used for a debt-equity conversion at an offer price of no less than 10 baht each. The remaining 50 million shares would be offered via a 1:5 rights issue at 10 baht per share. Eighty million of the 123 million shares would be for a voluntary debt-equity swap with creditors, and the remaining 43 million would be compulsory. As of the beginning of December Italian-Thai had registered capital of 4.305 billion baht. Its total debts were 20 billion baht, of which 14 billion baht was unsecured and was being restructured. The new share issue would bring to 423 million the total number of Italian-Thai shares. The plan was Italian-Thai's second round of debt restructuring, after creditors in late 1999 agreed to extend the repayment for $200 million worth of loans for another five years. Italian-Thai stopped servicing its debt in September 2000 after running into financial difficulties due to foreign-currency debt and the depreciation of the baht. As a result, many of its large design-build projects, including the big Nam Theun 2 hydropower project in Laos, were put on hold, affecting project repertoires of a number of overseas engineering consultants and contractors. Its major creditors included Siam Commercial Bank, Credit Suisse First Boston and BNP Paribas. The new restructuring plan also called for Italian-Thai to spend 1.9 billion baht to buy back debt at discounted prices. As well, the repayment periods for remaining debt would be extended. The company said the repayment of another two billion baht in debt would be spread over six years from 2002, with the first repayment in March 2004. The repayments would be funded by the sale of non-core assets, including shares in the provincial fixed-line operator Thai Telephone and Telecommunication and the skytrain operator Bangkok Mass Transit System Plc. Italian-Thai held a 10% stake in each company. Italian-Thai president Premchai Karnasuta earlier forecast that the company's revenues would be between 13 billion and 15 billion baht in 2001. With the revenue from Suvarnabhumi, turnover would rise to 20 billion baht or more by 2004. Italian-Thai in 2000 had a net loss of 3.97 billion baht on total revenue of 12.39 billion. It was expected to turn a net profit of about six billion baht in 2001, mostly from gains from debt restructuring. It was hoped that this improved cash situation would allow the company to restart the Lao hydropower project. However, foreign creditors are concerned that the financial plan set out by Italian-Thai does not reserve one single word as to cash flow and how it would be brought about. Foreign creditors upset with treatment - Collusion of debtor with SCB alleged Foreign creditors of Italian-Thai Development Plc warned they would not "forgive and forget" the way the company's debt restructuring plan had been handled, if they were forced to accept the plan by a majority vote of creditors on December 24. Of particular concern were the details worked out by the country's largest construction company and Siam Commercial Bank, its major creditor, according to a source close to the plan who asked not to be named. After learning of the details on December 13, a group of foreign creditors was preparing to file objections with the Central Bankruptcy Court, he said. The group included BNP Paribas, HSBC, HypoVereinsbank (Singapore branch) and Westpac of Australia. "We're bound by the judges' verdict if the decision comes in favour of SCB. But we will never forget [how we've been treated], if Italian-Thai needs our future support," said the source. The foreign creditors account for 40% of the debt under the rehabilitation plan, with SCB holding the rest. The source described the plan as "not ethical" and smacking of classical Thai business practices, as the steering committee that represented all creditors including SCB, was in the process of negotiating with Clifford Chance and Ernst & Young, Italian-Thai's advisers. "It's as if you owe me money, and bring somebody to talk to me and say you'll pay me money or compromise. But at the same time, you have somebody else doing something in your favour." The source also questioned the propriety of the four-member Italian-Thai planning group, as it included two brothers, one from Italian-Thai and another from SCB. He also took issue with SCB's practice of buying more Italian-Thai debt in the secondary market to enable it to tailor-make the eventual debt plan. "We had never learned from SCB, which also sat on the steering committee, before we learned from the press that Italian-Thai in conjunction with SCB had sought help from the court." Virat Ratanaporn, senior vice-president of SCB, said foreign creditors had a right to disagree with the plan, but he insisted it had been handled with maximum transparency. He said the process ensured that there was no conflict of interest involving the two brothers in question. Mr Virat said that Sranthorn Chutima, the bank's executive vice-president, had been barred from participating in all meetings of the planning group that included his younger brother, Chatichai Chutima, the vice-president for finance of Italian-Thai. "The debt restructuring plan has yet to be approved. But SCB, as the creditor, has tried its best to help the company survive," he said. Under another option, Italian-Thai designed an interest-free special purpose vehicle (SPV) to handle non-core assets worth four billion baht, under which Italian-Thai pledged to repay 75 million baht in June 2003, 200 million in June 2004, and 3,725 million baht in June 2007. The company also proposed a serviceable claim scheme for two billion baht in debt, at the minimum lending rate minus three percentage points, with repayment from March 2004 to December 2007, with a "bullet repayment" of 50%. Under a "bullet repayment", the principal is repaid in one lump sum at the end of the term, with only accrued interest being repaid beforehand. "The plan is unacceptable and not fair. In fact, the shared-claim scheme ... should come before the SPV portion, while the SPV milestones are very small, and the shared-claim grace period is too long," said the source. "In addition, Italian-Thai controls the management of the proposed SPV which involves up to four billion baht." The source also said the plan was not professional, as it detailed no projected cashflow of the company throughout the periods covered. "Though the company won the contract to build the new airport terminal worth of 36 billion baht, I find not a single word that states the company's cashflow which shows its future business potential," he said.