Three Thai tycoons are warning of a nascent economic bubble, blaming policies that have encouraged consumers to take on debt while the government borrows hugely to spur the economy

Tycoons of disaster urge caution; State policies creating a bubble, they warn

Published: 4 Jul 2013 at 23.52

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From left, Sawasdi Horrungruang, Boonchai Bencharongkul and Prachai Leophairatana. The three business tycoons discussed how they survived the 1997 crisis. (Photo by Pawat Laopaisarntaksin)

Three businessmen who lost most of their empires during the tom yum kung crisis are warning of a nascent economic bubble, blaming policies that have encouraged consumers to take on debt while the government borrows hugely to spur the economy. Boonchai Bencharongkul, a founder of No.2 mobile operator Total Access Communication (DTAC), voiced concern about a potential new crisis forming. “I think the current situation is worrisome. As one of those who had such an experience, I can smell it now. People are rushing and competing to buy condos while more and more people are driving Ferraris. These are the same things we saw before the 1997 crisis occurred,” Mr Boonchai told a forum hosted by Thansettakij newspaper Thursday. He said populist policies such as the first-time car buyer tax rebate have prodded people to borrow from banks as part of the government’s attempt to boost gross domestic product (GDP). “Don’t focus so much on GDP. In the end, people really care about how much money they have left in their pockets,” he said.Sixteen years ago on July 2, the baht was floated after having been fixed at about 25 to the US dollar. It eventually plunged to 56 baht, dealing a lethal blow to firms borrowing in dollars, as was the trend at the time.

As Thai companies fell, multinationals descended in droves to buy bad debt, causing resentment in many quarters.

DTAC was the first company to enter a debt restructuring process with its 50 creditors, supervised by the Bank of Thailand.

Although Mr Boonchai remains one of Thailand’s wealthiest tycoons, his empire was taken over by the Norwegian telecommunications giant Telenor.

He said he spent the next eight years licking his wounds and another eight redefining his strategy.

“Don’t over-invest, and if possible, do not borrow to expand the business,” said Mr Boonchai, adding that the government itself should not overspend.

“This time, the nature of the crisis might be different. Last time it was the private sector that went bankrupt, but this time we might see the government collapse.”

Sawasdi Horrungruang, a former tycoon who founded the NTS Steel Group, said the government should not borrow beyond its capacity to service the debt, which will eventually become the burden of taxpayers.

Mr Sawasdi found himself saddled with debt exceeding US$2 billion by the time the 1997 crisis was over.

NTS was merged with the Siam Cement Group’s steel unit and was later sold to India’s Tata Steel.

Another steel firm of Mr Sawasdi’s empire, Nakornthai Strip Mill, was merged with Somsak Leeswadtrakul’s G Steel Plc.

Mr Sawasdi also urged caution regarding the Thai government’s plan to help develop a deep-sea port and other infrastructure in Dawei, Myanmar, at a cost of several hundred billion baht.

Prachai Leophairatana, a founder of Thai Petrochemical Industry (TPI), blamed the government’s failure to protect Thai businesses during the 1997 crisis for destroying entrepreneurship in the country.

With debts approaching 100 billion baht, he was forced to sell most of his business empire to survive the crisis, leaving only TPI Polene (TPIPL), a unit accounting for just 10% of the group’s original asset value.

After filing for bankruptcy, TPI’s petrochemical business was taken over by the state oil company PTT.

“[The 1997 crisis] was the government’s failure. And the government should have protected investors … I’m still sad that the government did not help [Thai companies] but just made things worse,” Mr Prachai said bitterly.

He has bounced back somewhat from the crisis. His SET-listed TPIPL, Thailand’s third-biggest cement maker, plans a new investment of 10 billion baht, half of it to expand cement production capacity.

The project, which will increase TPIPL’s capacity to 12 million tonnes by 2026, had been suspended since the crisis but is resuming now.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

3 Responses to Three Thai tycoons are warning of a nascent economic bubble, blaming policies that have encouraged consumers to take on debt while the government borrows hugely to spur the economy

  1. Pingback: Thailand: Healthy Demand or Credit Bubble? | Thailand Market News

  2. Pingback: Why Southeast Asia’s Boom Is A Bubble-Driven Illusion | Bamboo Innovator

  3. Pingback: Southeast Asia’s Boom Is a Bubble-Driven Illusion? | Rightways

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