IMPACT 1999

Framework for Corporate Debt Restructuring in Thailand On 10 September 1998, representatives of the Board of Trade of Thailand, the Federation of Thai Industries, the Thai Bankers Association, the Association of Finance Companies and the Foreign Banks Association signed a jointly prepared document entitled Framework for Corporate Debt Restructuring in Thailand. The Bank of Thailand and these associations subsequently arranged for a substantial number of the banks operating in Thailand also to sign the document. The Framework is non-binding and non-statutory and is an attempt to codify, at least partially, good market practice for corporate workouts involving multiple creditors in Thailand. The principles set out in the Framework are largely reminiscent of the approach adopted in the United Kingdom, known as the London Approach. Objective and Principles The objective of the Framework (also known as the Bangkok Approach) is the efficient restructuring outside bankruptcy or court sanctioned reorganisation proceedings of the corporate debt of viable entities to benefit creditors, debtors, employees, shareholders and the Thai economy. The Framework contains 19 principles, most of which are then elaborated by one or more implementing policies. The principles can be broadly divided into the categories set out below. General Concepts The Framework emphasises the following general concepts:

the focus should be on a business restructuring rather than merely a financial restructuring and the restructuring should leave the debtor as a commercially viable concern for the long term; greater bank understanding towards debtors difficulties - banks are encouraged not to take precipitous action once they become aware that a debtor is in difficulty; decisions being made on the basis of full and accurate information; losses being apportioned legally and equitably; and banks should maintain the right to exercise independent commercial judgement, while also considering stakeholder interests.

Mechanics The Framework contains a set of guidelines for implementing a successful restructuring. These include:

establishment of, and compliance with, a schedule of fixed deadlines for the restructuring process - the Framework contains a suggested timetable for a restructuring; the involvement in the workout of senior management of all parties, the appointment of a lead institution at an early stage to co-ordinate the process and, where there is a large number of creditors, the convening of a representative steering committee; in relation to security and priority: (a) (b) continuation of existing security rights; new money should have special priority, based on the grant of security over real property, inter-creditor agreements or indemnities; and lenders should investigate the viability of improved security packages to reduce their risk and thus their required returns;

(c)

in large cases, an independent and reputable accountant or other expert should be appointed to assess the viability of the business; the debtor, after consultation with professional advisers and creditor representatives, should present a comprehensive, transparent and achievable business plan including cash-flow projections; any form of debt forgiveness should only be considered as a last resort and, if requested, must be compensated with shares or warrants; and from the date of the first debtor/creditor meeting, the creditors will standstill for a defined extendable period. During this period (estimated at 60 days or the time required to assess the viability of the debtor), the creditors will not take legal action, demand or accelerate their facilities, charge default interest or enforce security (except set-off rights). Any creditor not intending to comply with the standstill is required to give at least three days notice of its intention to take any action. Also, no creditor should attempt to improve its security or payment position during the restructuring. The debtor will also standstill and will not, other than in the ordinary course of business, incur expenses, dispose of assets, lend money, enter into related party transactions or make preferential payments.

Debt Trading The Framework provides that any seller of debt should consider whether the intention of the buyer, in becoming involved in the restructuring, is beneficial for all parties. Such sales should occur as early as possible in the restructuring process.

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Regulatory issues The Framework prescribes that any restructuring must result in the rehabilitation of assets to performing status in compliance with the Bank of Thailands regulations. This includes establishment of monitoring systems and allowing the debtor to become and stay current on principal and interest payments as soon as possible. The Ministry of Finance and the Bank of Thailand should also be kept informed of the progress of the workout. Other matters The Framework sets out a number of other matters implementation of a successful restructuring including: relating to

advisers who are appointed to assist with the restructuring should have appropriate knowledge and resources; creditors should take an active role in helping to control the costs of the restructuring; and any of the principles or implementing policies contained in the Framework may be waived or amended with the consent of all participating creditors.

Corporate Debt Restructuring Advisory Committee The Framework also refers to the establishment of the Corporate Debt Restructuring Advisory Committee (the Committee). The Committee was established under a resolution of the Joint Public and Private Sectors Consultative Committee dated 22 June 1998 and confirmed in a Direction issued by the Bank of Thailand. The Committee is responsible for setting policies to enhance negotiations for debt restructuring and has the support of the Bank of Thailand. The Governor of the Bank of Thailand acts as the chairman of the Committee, the remaining members of which have been drawn from the private sector and include each of the Presidents of the Board of Trade of Thailand, the Federation of Thai Industries, the Thai Bankers Association, the Association of Finance Companies and the Foreign Banks Association. The role of the Committee therefore is to regulate the practices of restructuring negotiations pursuant to the Framework and to work to develop policies for difficult issues. The Committee can rely on the support of the Bank of Thailand to give some force to its declared policies and to effect any required degree of influence on financial institutions involved in debt restructurings. Impact of the Framework The Framework utilises parts of an approach adopted in recent years in the United Kingdom. As a non-binding document, the Framework is of limited

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use without a general agreement among creditors (and the debtor) to comply with the Frameworks principles. The Framework will also not prevent Thai companies from defaulting on debt payments. The main advantage of adopting the Framework in a restructuring is that it requires the debtor to adopt and adhere to a number of basic principles. Although any well organised restructuring arrangement developed by debtors and their advisers will incorporate many of the principles set out in the Framework, the use of a standard set of principles may be helpful in situations where the debtor is reluctant actively to participate in the restructuring. The usefulness of the Framework (which remains unclear at present) is the extent to which the Thai Government, through the Bank of Thailand, will become actively involved in the restructuring process and will pressure Thai companies and financial institutions to comply with the principles set out in the Framework. The Thai Government has acknowledged that debt restructuring in Thailand is progressing very slowly at present and is expected to establish regional counterparts of the Committee to assist with debt restructuring. Bank of Thailand officials have also been appointed to oversee the restructuring of large Thai companies such as Thai Petrochemical Industry PCL. The delays being experienced may be due in part to difficulties in decision making by finance companies that are under the control of the Financial Sector Restructuring Authority (FRA) or banks and finance companies that are currently being merged with government owed entities. The completion of the sale of the finance companies assets by the FRA and the government initiated mergers may result in some improvement of this position. December 1998

For further information please contact Surasak Vajasit, Edward Dever, Suparb Vongkiatkachorn or James Lawden in Bangkok on (662) 679 6123.

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