Thailand's Italian-Thai Moves Ahead on Debt Swap by Phairath Khampha 23 June 2002 Italian-Thai Development Plc, one of the country's largest construction contractors, is going ahead with its plan to restructure 12.85 billion baht in debt, announcing on June 21, 2002 a proposal to swap debt at 59.87 baht a share. This is because its earnings outlook is much improved with an increased cash flow expected as a result of new large contracts which include 36-billion-baht Suvarnabhumi airport terminal and the 1,000 MW Nam Theun 2 hydropower project in Laos, even if the latter project was temporarily further delayed. Creditors agreeing to the voluntary programme would receive one share for every 59.87 baht worth of debt held, the company said in a statement to the Stock Exchange of Thailand. As of June 21 Italian-Thai shares were trading for considerably less, closing at 35.25 baht, down one baht, in trade worth 278.35 million baht. The debt-equity swap was part of the debt-restructuring plan approved in April by the Central Bankruptcy Court. Other elements included a debt repurchase at discounted prices, and the sale of non-core assets. To facilitate the debt-equity swap scheme, Italian-Thai would issue 73,867,818 shares to selected creditors, most of them unsecured financial creditors and unsecured debenture holders. Major creditors included Siam Commercial Bank, Credit Suisse First Boston, BNP Paribas and the Proust-Thaengthawng Consortium. Jarasrak Watanasingha, an analyst at KGI Securities Plc, said the debt-equity conversion and other restructuring measures were expected to reduce the company's debt by between eight billion and 10 billion baht. "The earnings outlook for Italian-thai is much improved this year," Ms Jarasrak said, forecasting that the company would post an operating profit of 1.1 billion baht. According to KGI, the company is also seen as the primary beneficiary of the recovery in the local construction industry. As of the beginning of June company had 50 billion baht worth of contracts in hand, including the 36-billion-baht Suvarnabhumi airport terminal, which it was building along with two Japanese partners, and the upcoming Nam Theun 2 Hydropower project in Laos, which it would be building with another Japanese partner. The contracts would be enough to generate healthy cashflow for the next three years, Ms Jarasrak said. The Nam Theun 2 project, however, has been put on a temporary hold as the World Bank, which is partly financing the project, became concerned that Italian-Thai had remained as the sole bidder on the design-nbuild contractor after the other short-listed developers had become reticent towards submitting bids because they felt that the conditions outlined in the contract and the specifications made the project developers carry too high a risk at best or made the project development nearly impossible to build at worst. Italian-Thai was the only developer to indicate it would submit a bid by the deadline date of June 27 as it felt that with its very strong political and economic influence in both Thailand and Laos, its Japanese partner and its Canadian engineering consultant, which has high experience in international hydropower projects, it was confident it could carry out the project, albeit at nearly 20 percent higher costs than had originally been envisaged by the Electricite de France, one of the project development partners. The other development partners, which form the Nam Theun 2 Electricity Consortium, that have a stake in the project include Italian-Thai, Electricite de Laos and the Electricity Generating Authority of Thailand. Almost all the power would be sold to Thailand, thereby providing much-needed foreign cash to Laos. The World Bank has indicated to the consortium that it would like to see the bidding period extended at least another3 months in order to allow the developers who had declined to submit bids another opprotunity to prepare and submit new bids, hence the new delay in going ahead with the project. The Nam Theun 2 hydroelectric project (NT2) is a part of the long-term collaborative effort between Lao PDR and Thailand, which provides for Laos to export 3,000 MW of energy from new capacity by 2008. As part of that effort the Ownership Company (OC) will undertake the NT2 project on a build, own, operate and transfer (BOOT) basis. The Nam Theun 2 Electricity Consortium (NTEC), currently representing the private sector interests, was incorporated with the relevant Lao Government's investment entity to form the OC for a concession period of 25 years. NT2 will produce on average 5,936 GWh per year, through a trans-basin diversion of the Nam Theun waters to the southern base of the Nakai escarpment. The power station would house four Francis units allowing for a 920 MW intermediate-peaking delivery to EGAT, and two Pelton units capable of generating 75 MW for local and regional Lao load. Thereafter, the diverted water would flow from the power station to the Xe Bang Fai River and then to the Mekong, but not before it would also be used for irrigation purposes in Laos, thereby providing a second benefit to the rural population in the area of the power project. The electricity generated will be transmitted to the Lao-Thai border where it will enter the EGAT grid, and to Khammouane Province's capital, Thakhek, for delivery to the Lao grid. Overall construction management of the project will be provided by the Head Contractor (HC), a joint venture formed by Electricité de France and Transfield (Australia), who will be responsible for basic design, tendering, and contractors' supervision. The HC will bear through a fixed price contract all construction risks, including possible costs overrun, delays and contractors' claims, thereby protecting the investors and in particular the Government of Laos from these risks. But the wording of the contract and specifications in fact transfer many of these risks to the design-build developers, hence why except for Italian-Thai there was such reticence in submitting bids for the design-build work. The participating parties to the Nam Theun 2 Project Ms Jarasrak said Italian-Thai was also expected to book a gain of as much as 6,575 billion baht from debt restructuring in 2002. Italian-Thai posted a net loss of 2.5 billion baht in 2001, its third consecutive annual loss. In the first quarter of 2002, the company made a net profit of 251.28 million baht, against a net loss of 337.531 million baht in the same quarter the previous year. 1 US Dollar = 42.08 Thai Baht