NAKORNTHON
BANK
Thailand: Background
The Past
• Currency Crisis
The Present & Future
• Public Sector vs. Private Sector
• Legal System Reform
– bankruptcy code
– foreclosure
• Parliamentary Conflict
• Privatization Program
NAKORNTHON BANK
Nakornthon Situation
• Capital
• Ownership
Nakornthon Bank Stock Price
120
100
80
60
40
20
0
Jan-92
Jan-93
Jan-94
NAKORNTHON BANK
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Banking System Re-capitalization
• Tier One
– Bank issues preferred shares in exchange for
tradeable government bonds
– NPL’s fully provisioned
• Tier Two
– Bank exchanges subordinated debentures for
non-tradeable, convertible government bonds
– NPL’s provisioned in accord with LCP 2000
– negative arbitrage
NAKORNTHON BANK
Banking System Re-capitalization
• Foreign Capital
– foreign banks:
• ABN Amro purchased 75% of Bank of Asia
• Thai Danu 50.1% owned by Development Bank of
Singapore
• Sanwa increasing stake in Siam Commercial
NAKORNTHON BANK
Strategic Partners
•Bank of Nova Scotia (Canada)
•Standard Chartered (United Kingdom)
•United Overseas Bank (Singapore)
Main concerns:
Strategic fit:
Stability of regional economy
Seeking branch network
throughout Thailand
Overstaffing/high operating
costs
NON-PERFORMING LOANS
Build upon limited operations
in Thailand & global network
Good management/reputation
NAKORNTHON BANK
Cash Flow Projections
• Assumptions:
– Re-capitalization
• Government assistance vs. foreign partner
– Loan loss provision and NPL’s
– Interest Rates
• Deposits
• Loans
– Thai Baht vs. U.S. Dollar
NAKORNTHON BANK
WACC => 11.65%
• Tax Rate of 28%
• $60 MM (2.3 bil baht) in U.S. denominated debt at 8%
– This debt expires in 2003 and 2005, but will have to be rolled-over
• 4 bil baht in Thai Government bonds at 11%
– This is a ten year note starting at the time of re-capitalization
•
•
•
•
2.1 bil baht in equity need to maintain Tier I capital requirements
Risk free rate of 5.5%
Market risk premium 19.4% for Thailand using EHV method
NTB beta from Thai stock market is 1.01, signaling parity with the
overall Thai market
– The average beta for Thai banks is 1.45
NAKORNTHON BANK
Nakornthon Valuation
(000’s Thai Baht)
Terminal Value
Discounted Cash Flow
TOTAL VALUE
Less Restructure Cost
USD Equivalent
NAKORNTHON BANK
852,248 THB
1,243,244 THB
2,095,402 THB
(17,212,282 THB)
($491,779,000)