Debt for equity exchange only works in countries with effective laws and regulatory authorities, and that counts out Russia, Indonesia, Thailand, Taiwan, China and most other countries.
If I were a self-dealing bank owner who had been lending your deposit to my own and friends' related companies, and the money is now blowing in the wind. I would welcome you to exchange my debt to you into your shares in my bank/companies. As long as I remain in control,and my parliament brother-in-law would make sure I do, I can do it to you all over again, with gusto. I will short the stock, talk down the price, issue rights (call on existing shareholders for new money) packaged with warrants (call options with strike far above now depressed prices). I would do this by hiring the best Wall Street has to offer. You would be scared to subscribe to the Rights and Warrant combo, I would not, especially from my apparently unrelated offshore companies where I had siphoned a bunch of your deposits earlier on. Then I would get my pals in parliament to craft laws for public money rescue (causing the stock price to sharply recover) - in fact the rescue would be financed by additional taxes on you, and finally, applying the insult of exercising my now far in-the-money call warrants in exchange for oodles of new shares and become as much of an equity shareholder in my bank as I did before you discovered you made me rich the first time around. Again and again, with gusto and merryment, accompanied by champaign and caviar, and Brittany's "Oops, I did it Again" wafting through the Bose.
Welcome to emerging markets. I do not make these things up as I am not that imaginative.
At the onset of the Indonesian collapse, I attended a dinner with inlaws and their Indonesian based friends. One guy (Mr Happy) was laughing and having the time of his life. Jay, being the innocent and straightforward, asked "Mr Happy, you do not seem worried even though things must look really black back at the ranch";
Mr Happy: "I just bought all new German equipment for my textile plant, on five year manufacturer's finance, denominated in Deutch Marks"
Jay: "with Rupee down a gizzillion %, you are bankrupt"
Mr Happy: "Yes, but the plant is running full steam, based on local material and labour, and the German supplier has gone bankrupt first. No one has tried to chase me for the loan"
WSJ complained about the lack of bankruptcy code in SE Asia. It is exactly this lack that saved SE Asia.
If one goes back to track the political/law-making development of Thailand/Indonesia over the past few years, one will note the amount of self-dealing by senators and congressmen on behalf of all the people whose continued support matter to them. The rich always get richer, if they are smart. |
