Asia: Market introduction

Author: | Published: 4 Jan 2001
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The following articles, contributed by Asia Private Equity Review, are intended to illustrate the two investment directions taken by Asian private equity firms in recent years. After the 1997 Asian crisis, the industry was faced with two daunting challenges, the restructuring of financially ailing investee companies, and seeking opportunities in the new economy. The first article ('Governing the Directors') is an insight into the difficulty in implementing corporate governance in a debt-laden company. The second ('Chasing Midas') is an extensive and informative survey on the new investment contour resulting from the internet frenzy.

If the US-based National Association of Corporate Directors (NACD) hopes to recruit disciples from the Asian private equity market to follow its recently published corporate governance ideology, it is likely to be disappointed. In its 'Role of the Board in Corporate Strategy', the NACD spelled out the crucially inter-related roles of directors and management in the future well-being of a corporation. It interprets the key functions of these, as directors evaluating the strategy proposed by management, and management developing the corporate strategy and regularly updating the board on its execution. At this juncture, within the Asian context, the NACD blueprint is but a pipedream. H&Q Asia Pacific's recent plight in the Thai Cane Paper Public Company (TCP) casts light on the awesome task that faces directors in Asian corporations, and mocks those who labour to set and apply standards to governing directors.

Paper King

TCP is a leading producer of packaging paper, established in 1987 by the Keeratimongkollert family. In 1999, TCP captured 20% of the Thai market. In a conference presented by Asia Private Equity Review the same year, Thaveekiat Keeratimongkollert, chief executive officer of TCP, recalled its timely establishment. He remembered the Thai economic boom in 1987 that created an acute demand for packaging paper. "When we started anew, there was a long queue to buy our product," Thaveekiat said.

TCP's first rendezvous with private equity dates back to 1993 when H&Q invested $2 million for a 7% stake in this young and promising company (see fig.1). At that time, TCP was run by the second son of the Keeratimongkollert family, together with an independent professional manager. In 1996, TCP listed on the Stock Exchange of Thailand. Ironically, the public status did not result in a dilution of the Keeratimongkollert family influence over the management. On the contrary, following a power struggle, the third son, Thaveekiat, was appointed as CEO, while his eldest brother, Nantachai, became administration manager.

In May 1996, TCP hatched an expansion plan to build a second mill which would require $100 million. Four months before Thailand led the region into the financial crisis, the Thai government's Board of Investment approved TCP's ambitious plan to be the nation's first four-ply kraft paper producer, while the Thai Farmer Bank was its principal creditor, providing loans in US dollars.

Unfortunately, when the baht was devalued in 1997, the construction of TCP's second mill was only half completed. In order to meet its liabilities, TCP initiated a rights issue. By the end of January 1999, H&Q had committed $21 million and had become a 58.7% shareholder of TCP, while the Keeratimongkollert family's interest was reduced to 18%.

As a majority shareholder, Virapan Pulges, managing director of H&Q's Thai office, took up a seat on the TCP board and stipulated monthly meetings with TCP management. PricewaterhouseCoopers was appointed as the new auditor, and all cheque payments were to be counter-signed by H&Q. An Audit Committee was set up in March 1999.

Unbeknown to H&Q, Thaveekiat, the incumbent CEO, together with his eldest brother, Nantachai, opened new accounts on behalf of TCP with their father Kitti's, help. They borrowed money from banks without notifying the board of directors. The matter only came to light when in March this year, Virapan received a telephone call from a banker asking for interest on loans that had become non-performing. While following this up, H&Q found that the three members of the Keeratimongkollert family had borrowed some Bt500 million ($11.6 million), which was not reflected in TCP's balance sheet. It came as no surprise to Virapan when he discovered that the unaccounted-for loans had been channelled into the private accounts of the Keeratimongkollert family members.

When questioned, the elder Kitti, founder of TCP, claimed that as he was virtually illiterate, he had simply signed the documents presented to him by his two sons. When asked why they acted fraudulently, the family argued that the money was used to buy back stocks to support TCP's share prices.

The month of April saw H&Q take drastic action to protect its financial interest in TCP and assume full control in its management. Just before the Thai New Year in mid-April, the two brothers were removed from all management positions in the company. On April 27, H&Q added new directors to TCP's board, after which, the two brothers resigned from the board of directors. There were also changes in the Audit Committee members, because one of the independent directors resigned. Pol. Maj. General Urai Sri-Urai, was appointed to head up the Committee. Two days later, Virapan was appointed as the first vice chairman of TCP with Pol. Maj. General Urai Sri-Urai as the second vice chairman. Another army general was appointed as an adviser to TCP. Shortly afterwards, a complaint was filed with the Economic Crime Investigation Division against Kitti and his two sons for embezzlement, as well as for falsifying documents to open bank accounts.

As H&Q installed a new regime for TCP, its financial position was grim. By the end of July, it was facing a debt burden of Bt4.8 billion ($112 million), with an annual interest payment of Bt270 million ($6.3 million), although it reported assets of Bt6.9 billion ($161 million). TCP's major creditors, Thai Farmer Bank and Bangkok Bank, expressed grave doubt as to the future financial strength of the company as they cancelled their credit lines. In mid-May, TCP shares were suspended from trading. Facing a lack of capital, TCP was forced to close down one of its plants, causing its annual production volume to plunge by some 65%.

Meanwhile, TCP is racing against time. With credit suspended by all financial institutions, TCP has an estimated Bt50 million ($1.16 million) in cash reserves. In order to get a clear picture of TCP's liabilities, on June 23 H&Q filed a Rehabilitation Petition to the Bankruptcy Court so that creditors could claim outstanding amounts owed to them within a month. The Petition was rejected by the Court on the grounds that although TCP was insolvent, its assets were still in excess of its liabilities. Virapan has indicated that TCP's creditors may resubmit the Petition to the Court.

In the meantime, TCP is turning to its next strategy, and is negotiating a rehabilitation plan with its major creditors. Although TCP resumed trading on October 5 (see fig. 2), its legal counsel fears that the company will sink beyond the hope of recovery, unless an agreement is reached soon.


A formidable task is facing H&Q. Kitti has since taken up residency in China, while the eldest son, Nantachai, has possibly returned to the US where he is a citizen. If H&Q were to press charges, it would invoke cumbersome cross-border litigation procedures.

Under the weight of financial burdens, the Keeratimongkollert family deviated from their previous professional standards, and dragged the company that had been created with their bare hands into an abyss, abandoning and totally disenchanting its staunch investors. In order to ensure future transparency in TCP, it was necessary for H&Q to conscript the support of military personnel on the board of TCP. Adhering to the corporate governance code in Asia takes more than just respect and trust between entrepreneurs and their investors.

Chronology of Thai Cane Paper PCL


H&Q invested US$2 million in TCP for a 7% stake 1996 TCP went public at an issue price of Baht 28 (US$0.66)


approved by Board of Investment to build its second mill at a cost of US$100 million. Thai Farmers Bank provided US dollar loans

Jul second mill was half completed. TCP faced a US$80 million debt. H&Q made its second investment in TCP and raised its stake to 43%


H&Q bought 24 million new shares of TCP at Baht 10 apiece and raised its interests to 58.7%. Keeratimongkollert family's interest diluted to 18%.

Mar an Audit Committee was formed


H&Q took action to revamp TCP's management Khun Thaveekiat and Khun Nantachai were removed from all management positions

27 Pol. Maj. Gen. Urai Sriurai and Khun Krisana Sirakrisakul joined the board of directors, replacing Khun Thaveekiat and Khun Nantachai who resigned

29 Khun Virapan Pulges of H & Q (Thailand) was appointed first Vice Chairman of TCP and Pol. Maj. Gen. Urai Sri-urai being the second Vice Chairman. Gen. Kitja Witssanuwongse was appointed as an advisor to the company TCP filed charges against the Keeratimongkollert family members for fraud


TCP shares were suspended from trading


H&Q filed a Rehabilitation Petition in Bankruptcy Court for TCP

25 new members were introduced to the Audit Committee


Pol. Maj. Gen. Urai Sri-urai was appointed as Chairman of TCP

24 Bankruptcy Court hearing began. TCP's debt was Baht 4.8 billion (US$113 million) against assets of Baht 6.9 billion(US$162 million)


Bankruptcy Court over turned TCP's Petition that the company was insolvent


TCP has a cash reserve of Baht 50 million (US$1.18 million)



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