Good but dated analysis (October) of Thai economic and political risk from a Hong Kong based consultancy:
asiarisk.com
To quote:
"Many Thais, however, still seem to be in a state of denial, hoping for some rescue rather than confronting the impact of the crisis. Bangkok is attracting many property bargain hunters but few are finding any bargains. Some major property companies may be for all practical urposes bankrupt yet prices are not coming down and rents have fallen by much less than the rate of vacancies might suggest. Property transactions have virtually ground to a halt. As a result it is difficult to know what constitutes a market price or the real worth of property serving as loan collateral. Meanwhile Bangkok's office, shop and residential glut worsens.
The more serious problem is how Thai companies are going to deal with the squeeze at home and more than US$40-billion worth of mostly hort-term foreign debt which falls due within the next 12 months. The debt-to-equity ratio for listed Thai corporates is now about 280%. Higher VAT is set to accelerate an already steep decline in domestic consumption. While government leaders pursue their own political interests the plunge in the baht's value is adding to corporate woes. The central bank proposed to put up a credit line of 6 billion baht through the Ministry of Industry. As a sign of current woes, the ministry reported 248 applications received in August amounting to 60 billion baht. Manufacturers in key export industries like textiles are warning that without financial support to obtain raw materials they will lose millions of dollars worth of export contracts.
As a result Thailand is in danger of suffering serious unemployment. In the present climate of uncertainty there are few clear pointers as to how many jobs will be lost and how permanently, but our increased grade for law and order takes account of the social fall-out of conomic hardship. Job cuts will occur in almost every sector. An Employers' Confederation estimates that six categories of employment (garment, textiles, electronic, auto parts, construction and services) will lose up to 180,000 jobs (8% of their total employment) by December. One survey suggests the jobs of as many as 10% of Thailand's 29 million workers are at risk."
End of Quote
That's a 280% debt-to-equity problem for Thai corporates. That is a massive financial problem since much of the debt is U.S.$ denominated and the baht has fallen since October making the problem worse.
The IMF just updated it's October world economic forecast and revised it's outlook for world real GDP growth to 3.5% - revised down by 0.8% in two months because of the Asian crisis. It's forecast for Thailand in 1998 went from 3.5% to 0.0%. I think this forecast is overly optimistic for Thailand based on the cuts coming in government spending and the rise in the VAT rate that will curb consumer spending. Higher interest rates and the destruction of financial wealth that has already occurred won't help spending either. The hope is that the baht depreciation will spur exports and cut imports but exports can't respond quickly with so many firms having a debt problem to be worked out first (probably by means of debt holders taking equity stakes and causing share dilution) and until that is done management time is taken up with the debt problem. Also, new funds for increasing capacity or funding working capital needs are scarce which impairs the debtors' ability to expand production and exports.
The bottom line is that I don't feel uncomfortable about being short on the Thai fund, especially with a premium to NAV of 52% as of Dec. 19. The $1 drop in TTF last week to $6 1/8 brought the premium down from 81% on Dec. 12. The NAV actually increased slightly on the week (3%).
short on TTF,
John |
