The Thai Asset Management Company (TAMC)

The TAMC was established in 2001, four years after the onset of the financial crisis in Thailand (TAMC 2005b). In 1997, the Thai government suspended the operations of 58 finance companies and required them to submit rehabilitation plans by year’s end (Lindgren et al. 1999). Only two companies were allowed to continue operations; the remaining 56 FCs were liquidated by the Financial Sector Restructuring Authority (BOT 2000a). The state-owned Asset Management Corporation was established to be the “bidder of last resort” for the FRA (BOT 2000a).

The Thai government established the Corporate Debt Restructuring Advisory Committee in June 1998 to “facilitate and expedite private debt restructuring negotiations” (BOT 2002). In addition, the Thai government committed public funds to recapitalize viable banks and finance companies by establishing two schemes to provide capital support to viable financial institutions (Lindgren et al. 1999). Amendments to the bankruptcy law were passed in April 1998 and May 1999 to further promote effective corporate restructuring (IMF 2000). In addition, the Thai government encouraged private and state-owned financial institutions to establish AMCs in the years following the crisis; overall, four state-owned AMCs and 12 private AMCs were established (Terada-Hagiwara and Pasadilla 2004).

The Thai authorities opted for the initial decentralized approach to resolving NPLs—primarily through the establishment of individual AMCs and the CDRAC—because of concerns about operational difficulties and “potential political interference” in the operations of a centralized AMC. But the decentralized approach was unsuccessful for a variety of reasons. Decentralized AMCs didn’t have the authority to bypass court procedures, limiting their ability to improve collections. Some state-bank AMCs overpaid for assets because the government’s goal was to recapitalize them. At the same time, private banks had little incentive to transfer NPLs to AMCs that they still had to consolidate. Under guidelines on the transfer of financial assets, a financial institution was required to hold capital against the NPLs and the AMC bonds used to purchase the bonds, which resulted in a “double counting of required capital” (Santiprabhob 2003). By 2001, NPLs in the Thai financial system remained high at 1.35 trillion baht. The government established the TAMC as a centralized AMC to replace the decentralized approach with a more aggressive strategy to address the persistence of the NPL problem (TAMC 2005b).

The Thai cabinet established the TAMC by the Royal Proclamation on Thai Asset Management Company B.E.2544 (2001), which was published in the Royal Thai Government Gazette. The king, Bhumibol Adulyadej, signed the decree into law, and the minister of finance was given “the charge and control of the execution of the royal decree” (Royal Proclamation 2001). The decree became effective on June 9, 2001 (Amorn 2001; Royal Proclamation 2001; TAMC 2005b). The TAMC was established by a royal decree in order to expedite its establishment, as the decree allowed it to bypass debate and discussion in the parliament (Thai News Service 2001b). Prior to the passage of the royal decree, the prime minister convened a conference with representatives from the Ministry of Finance, the Bank of Thailand, state-owned and private institutions, and academics (TAMC 2005b). A working committee and four task forces were established after the conference in order to oversee and design the framework for the TAMC (Thai News Service 2001a). The task forces included authorities from the Bank of Thailand, the Financial Institution Development Fund, the Thai Bankers’ Association (representing commercial banks), the Bank of Asia (a commercial bank), and the MOF. The taskforces were responsible for planning the general administration, asset management, debt repayment, and pricing frameworks (Thai News Service 2001a).

The royal decree establishing the TAMC provided it with special legal authority and powers to achieve its objectives. The TAMC had “extraordinary powers to liquidate, restructure and dispose of assets” (Kazmin 2001). The actions and decisions of the TAMC could not be challenged in the Central Administration Court. TAMC staff were granted immunity against criminal liability if they acted within the mandate of the royal decree. The TAMC could withdraw cases from the court and proceed with a different restructuring method. The TAMC could put debtors into permanent receivership without investigation if the debtor attempted to hide assets or failed to cooperate with the TAMC. The TAMC’s plans for business restructuring could be approved by the Bankruptcy Court without the approval of debtors. The TAMC could make decisions in lieu of a company’s shareholders and could bypass procedures set forth in the public company law (Santiprabhob 2003).

Despite the establishment of individual AMCs for state-owned and private financial institutions, NPL levels remained high at the end of 2001 (Santiprabhob 2003). The TAMC was established to address the high NPL ratio with the specific mandate to manage impaired assets from financial institutions and AMCs. Debt restructuring and business reorganization were further objectives of the TAMC to advance the economic recovery in Thailand (Royal Proclamation 2001).

Specifically, the TAMC had five stated objectives: (1) rapid, transparent, and efficient management of impaired assets; (2) management of impaired assets in a manner that brought maximum public benefit; (3) minimization of government and taxpayer losses; (4) facilitation of business rehabilitation to enable borrowers to continue business; and (5) equal and fair treatment to all parties in the management of assets (TAMC 2005c).

In the 2001 prime minister election, Thaksin Shinawatra ran on a platform that included the establishment of a centralized, state-backed asset management company (Government of Thailand 2001; Kazmin 2001; Santiprabhob 2003). The TAMC was considered a key component of Shinawatra’s campaign and a contributing factor to his victory (AFP 2001; Kazmin 2001). The electorate viewed the quantity of NPLs as an obstruction to economic growth as those loans prevented new credit and business investment, delaying economic recovery in Thailand (Santiprabhob 2003). After taking office, Shinawatra outlined his key policy priorities, which included the establishment of a national AMC in order to “comprehensively solve the problem of Non-Performing Loans (NPLs) in the commercial banking system swiftly, systematically, [and] comprehensively and to enable the financial system to resume their normal credit functions” (Government of Thailand 2001). The TAMC was framed as a “last chance” to resolve the NPL crisis in Thailand, as other measures had already been attempted (Pornavalai 2002).

The BOT governor in 2001 stated that the TAMC would enable more effective management and disposal of distressed assets, though it had the potential to increase fiscal costs; however, the costs would be “manageable” and “not abnormal in terms of international comparison” (Sonakul 2001). His successor framed the TAMC as a body able to “deal effectively and speedily with the unresolved debts that involve[d] multiple creditors.” He stated that the TAMC had “vast executive powers” that allowed it “to take a comprehensive approach to debt restructuring and have the ability to deal with cases that might warrant corporate restructuring and change of management” (Devakula 2001). In addition to statements from government officials, the TAMC prepared promotional materials in which it framed its operations as benefiting the Thai economy; these materials included a manual, which stated that the “TAMC provides real and tangible benefits to debtors, financial institutions, and asset management companies, [and] to Thai society and the overall national economy.” The TAMC emphasized that its activities would allow banks to return to normal lending practices, “providing the necessary engine for growth and national development as well as economic recovery” (TAMC 2005c).

In addition to public statements from government officials and promotional materials, the TAMC issued press releases and announcements, annual reports, and other financial statements.

The TAMC was fully owned by the Financial Institution Development Fund (Pornavalai 2002). The FIDF was established in 1985 as a subsidiary of the BOT “to rehabilitate financial institutions to maintain stability in the financial system” (BOT 2000b). The FIDF purchased the initial 1 billion baht in share capital of the TAMC. The TAMC issued 10-year bonds that were used as consideration for the transfer of assets; these bonds were nontransferable and guaranteed by the FIDF. To increase capital, the TAMC could issue new shares, which required cabinet approval; any unsold shares were to be purchased by the FIDF (Royal Proclamation 2001; Fung et al. 2004).

The minister of finance had the “charge and control of the execution” of the TAMC. The minister of finance was responsible for appointing up to 11 board members, who were approved by the cabinet. The board was required to have a representative from the Thai Bankers’ Association, the Chamber of Commerce, and the Federation of Thai Industries. The board set the policies, regulations, guidelines, and framework for the TAMC (Royal Proclamation 2001). The board was required to review plans and provide recommendations and comments for cases with a book value of more than 1 billion baht, as “these cases [were] usually sensitive and [had] significant impact on the economy” (BOT 2002).

The TAMC also had an executive committee, which was responsible for the management of impaired assets. The executive committee was composed of a CEO and three executive directors. The MOF, BOT, FIDF, Federation of Thai Industries, Chamber of Commerce, and private institutions nominated individuals to serve on the executive committee; the board appointed executive directors from the list of nominees. The board elected the managing director, who oversaw the administration of the TAMC. The executive committee reviewed and approved plans for debt restructuring, business reorganization, and asset sales. The executive committee monitored the TAMC’s progress, appointed and hired staff, secured capital sources and reorganization partners for the debtors, and reported the results of operations to the board (Royal Proclamation 2001). In 2002, the TAMC board approved an additional 130 staff roles, for a total of 330 staff (TAMC 2002). At the end of its operations, the TAMC had 400 staff (Katharangsiporn 2011).

The minister of finance was able to “assign the Bank of Thailand to examine the business, the assets and the liabilities of the TAMC” (Royal Proclamation 2001). However, the BOT was not able to take supervisory action against the TAMC (Fung et al. 2004). The TAMC followed accounting standards and established internal controls and an auditing system. The TAMC was required to prepare financial statements every six months. The state auditor of Thailand was to audit the TAMC every six months and provide the results to the minister of finance (Royal Proclamation 2001). The TAMC was evaluated annually by an international accounting firm (Fung et al. 2004). In 2004, the TAMC board of directors established a risk management subcommittee to develop “a risk management system that [could] identify, measure, control and monitor risks in accordance with corporate governance principles” (TAMC 2005a).

The TAMC was required to act in a transparent way and ensure availability of its reports and progress (Royal Proclamation 2001). The TAMC had a website where annual reports, press releases, FAQs, and other resources were available; in addition, the website had a platform that allowed for the user to search for property (TAMC 2005b). Before an auction, the TAMC was required to post information in the press and on its website. Despite these measures, analysis of the TAMC’s operations noted that the TAMC had not disclosed detailed information on its operations (Santiprabhob 2003).

The royal decree establishing the TAMC did not explicitly state a predefined size or limit to the TAMC’s purchasing (Royal Proclamation 2001). The initial expectation for the TAMC’s scope was 1.35 trillion baht of bad debt, with the majority coming from state-owned banks (Kazmin 2001; TAMC 2005b). In total, the TAMC acquired 780 billion baht) in assets at book value for a transfer price of approximately 265 billion baht.

The FIDF provided the TAMC with initial capital of 1 billion baht (Santiprabhob 2003). In exchange for assets, the TAMC issued 10-year bonds that were nontransferable and fully guaranteed by the FIDF. These bonds paid yearly interest at a rate no higher than the average interest rate paid by a selection of five large commercial banks (Royal Proclamation 2001). Under the Royal Proclamation, there was also a detailed profit- and loss-sharing arrangement that shared the prospective losses and profits on the management and disposal of transferred assets with the transferring financial institution.

Institutions eligible to transfer assets to the TAMC included financial institutions and asset management companies. Eligible financial institutions included commercial banks, finance companies (including those operating a securities business), credit foncier companies (mortgage loan companies), and others determined by the MOF. The private and state-owned AMCs established after the financial crisis in 1997 were also eligible to transfer assets. Financial institutions or AMCs in which a state agency (i.e., FIDF) had more than 50% ownership were required to transfer all assets that were classified as substandard and below as of December 31, 2000, to the TAMC (Royal Proclamation 2001). In 2002, the MOF announced that the Industrial Finance Corporation in Thailand was eligible to transfer assets (BOT 2002). Trade creditors and non-Thai banks were ineligible to transfer assets to the TAMC (Pornavalai 2002).

All state-owned financial institutions and AMCs were required to transfer all assets classified as impaired as of December 31, 2000, to the TAMC. The impaired assets included those that were classified as bad, possibly bad, doubtful or substandard (Royal Proclamation 2001). Substandard assets were those more than three months past due (Santiprabhob 2003).

Private financial institutions and asset management companies were required to transfer NPLs to the TAMC if they met the following criteria:

• The loans were secured by property;
• The borrower was indebted to two or more Thai financial institutions;
• The borrower had 5 million baht or more in NPLs;
• The borrower and financial institution did not have a finalized debt restructuring agreement in writing by July 2001; and
• The Bankruptcy Court had not approved a rehabilitation plan (Pornavalai 2002; Royal Proclamation 2001; Santiprabhob 2003).

Ineligible assets included those related to the FRA’s activities or from companies the MOF suspended. Assets that became nonperforming after December 31, 2000, were not eligible for transfer to the TAMC (TAMC 2005c).

Institutions that did not transfer eligible assets to the TAMC faced a penalty (Royal Proclamation 2001; Santiprabhob 2003). If a financial institution failed to transfer the assets as directed by the TAMC, the institution was subject to a daily fine of 500,000 baht. Furthermore, private institutions that did not transfer assets were required by the Bank of Thailand to reappraise the collateral backing NPLs within 120 days (Royal Proclamation 2001). As an additional incentive to transfer, the institutions were required to provision for all loans classified as substandard and below 90 days after the appraisal up to their uncollateralized portion; this provisioning was more stringent than the standard provisioning requirement by the BOT. Despite these penalties, by the end of 2001, the TAMC’s purchases of NPLs from private financial institutions comprised only 15% of their total outstanding NPLs (Santiprabhob 2003).

As a part of the process to transfer NPLs to the TAMC, an institution was required to provide written notice to the TAMC and complete the transfer in the timeframe specified by the TAMC. Asset transfers were irrevocable. The TAMC was required to issue evidence of the transfer of the impaired assets to the transferring institution; the transfer was considered effective on the date the TAMC issued evidence to the transferring institution (Royal Proclamation 2001).

The TAMC issued FIDF-guaranteed bonds in exchange for the impaired assets. These bonds had a 10-year maturity and carried an interest rate that was no greater than the average interest rate paid by a select group of five large commercial banks. The interest on these bonds was paid yearly (Royal Proclamation 2001). The BOT allowed the transferring institution to record these instruments “as eligible liquid assets as of the date of receipt of these notes” (BOT 2001).

The TAMC accepted asset transfers in tranches (Fung et al. 2004). The TAMC announced that the first transfer of assets occurred on October 15, 2001; this tranche consisted of assets that had a borrower with at least 50 million baht in outstanding debt and with a state-owned institution as the single creditor (TAMC 2001a). The second tranche of assets was transferred on October 31, 2001, and included debt from borrowers with more than two creditors and assets from both state-owned and privately owned financial institutions (TAMC 2001b). The third tranche of assets was transferred on November 30, 2001, and included the rest of the assets with two or more creditors. The total book value of assets transferred at the end of the first year was approximately 700 billion baht (TAMC 2001c). The majority of assets transferred to the TAMC were transferred in 2001 in one of the first three tranches, and the TAMC had executed the transfer of five tranches of assets by 2003 (Fung et al. 2004; TAMC 2001c).

For the purchase of assets from state-owned institutions, the purchase price was “equivalent to the value of assets that is the security of the said impaired assets, excluding personal guaranty. In case there is no property held as security, the price shall be according to the bases laid down by the Board” (Royal Proclamation 2001). For the purchase of assets from private institutions, the purchase price was the lesser of either the collateral value excluding personal guarantees or the book value of the NPLs less applicable reserves. The book value was defined as the “principal amount of the loan as at the date of transfer, together with accrued interest for the three-month period prior to the transfer date” (Pornavalai 2002). For the assets backed by real estate collateral, the pricing amendment enacted in September 2001 required that the property valuation be in accordance with the methodology used by the Bank of Thailand (see the Key Design Decision No. 15, below) (Amendment 2001).

At the time of a transfer, the TAMC provided an initial price estimate but evaluated the information accuracy to ensure proper pricing. The TAMC was required to notify the transferring institution that it accepted the transfer or of any amendments to pricing within 180 days. At the end of 2001, the average transfer price for assets from private institutions was 53% of book value and 29% for state-owned institutions (TAMC 2001c).

The government amended the valuation method for real estate collateral from private institutions in September 2001 and published the amendment in the Royal Thai Government Gazette. In the original version of the royal decree, the valuation for the land was equal to the price determined by the Land Department in its assessment for tax purposes. However, the Land Department did “not have the assessed price according to market price principle for all plots of land.” There was concern that submitting appraisal requests for the collateral property would add time to the transfer process, significantly delaying the timeframe of the TAMC and hindering economic recovery (Amendment 2001). Furthermore, the original pricing principle “reflected the authorities’ limited knowledge about asset valuation and on the capability of the Land Department” (Santiprabhob 2003). Thus, the pricing method for the purchase of assets from private institutions was amended to conform to the BOT’s standards (Amendment 2001).

The Royal Proclamation establishing the TAMC outlined the profit- and loss-sharing arrangement between the TAMC and the transferring institutions, specifying that the transferring institution and the TAMC would be jointly liable for the profits or losses on the management of transferred assets. The TAMC took operating expenses into account when calculating the profits or losses (Royal Proclamation 2001).

In the case of a profit, the profit was allocated between the TAMC and the transferring institution as outlined in Figure 1 below.

Source: Royal Proclamation 2001.

If there was a loss on the disposal of an asset, the loss was shared between the TAMC and the transferring financial institution as outlined in Figure 2 below.

Source: Royal Proclamation 2001.

Therefore, a transferring institution’s profits were capped at the difference between book value and transfer price, and its losses were capped at 30% of the transfer price. The TAMC and the transferring institutions calculated and recognized the profits on the management of assets at the end of the fifth and 10th years of the TAMC’s operations (Royal Proclamation 2001).

Debt restructuring was a primary tool for the TAMC to resolve its portfolio of impaired assets. The TAMC emphasized debt restructuring as a resolution method because “[t]he main objective of the process is to maintain the viability of the debtor’s business” while still allowing the TAMC to recover “an appropriate amount of debt within a reasonable period”. The TAMC had “broad authority to achieve its objective” in debt restructuring. Laws related to debt restructuring were waived for the TAMC. In order to be eligible for debt restructuring, the borrower had to be able to demonstrate the ability to repay, business viability, or benefit to the economic recovery of Thailand (TAMC 2005c).

The TAMC had the flexibility to determine the method or combination of methods based on the debtor’s circumstances and the complexity of the case (TAMC 2005c). The methods available to the TAMC for debt restructuring included the following:

• Reduction in principal, interest, interest rate, and time period for interest computation;
• Extension of debt repayment period;
• Debt-to-equity conversion;
• Acceptance of the transfer of noncollateral assets (from the debtor or a third party) to settle a debt;
• Debt repayment via a leaseback arrangement with the debtor;
• Acceptance of shares or purchase of capital to increase shares of the debtor;
• Release from or termination of the liability; or
• Any other methods that the board approved (Royal Proclamation 2001; TAMC 2005c).

The Royal Proclamation granted the TAMC additional special powers to release debtors from indebtedness. “If the debtor pledge[d] additional unencumbered assets with at least the same value as the outstanding debts, [the TAMC could] remove any remaining obligation from the debtor’s guarantor.” The TAMC could also release the debtors from their liability if the guarantor agreed to transfer assets with an appraised value of at least two-thirds of the value of the debtor’s total outstanding debts after the debt restructuring process (TAMC 2005c).

The BOT reported that “[t]he installment payment method was utilized the most [by the TAMC] as it offered more flexibility to debtors.” The TAMC also frequently utilized debt-to-equity conversions and accepted the transfer of assets as a form of debt repayment. The average haircut for debt restructuring cases was 38% as of December 2003 (BOT 2003).

Business reorganization was a tool available to the TAMC to manage its portfolio of impaired assets. Business reorganization could improve a borrower’s viability through “more efficient management and a streamlining of its organization structure” (TAMC 2005c).

In order to be eligible for business reorganization, the borrower had to meet the following criteria:

• The borrower was a limited company, a public limited company, or a juristic partnership;
• The TAMC held at least 50% of the total outstanding debt of the borrower;
• The borrower had preliminary evidence to support business continuation and viability; and
• The borrower expressed written intent and consent to the obligations and plan specified by the TAMC and the royal decree (Royal Proclamation 2001).

The TAMC could facilitate business reorganization independently or in tandem with debt restructuring. The original creditors and asset managers were involved in the restructuring process (BOT 2002). The executive committee appointed a planner who began to arrange and organize a business reorganization plan for the borrower. The plan was required to include “the particulars, methods and targets, period of plan administration, and other details.” Business reorganization plans were limited to five years (Royal Proclamation 2001).

The TAMC had broad powers to facilitate business reorganization and could organize mergers, consolidations, dissolution of a part of the business, capital increases or reductions, rehabilitation by a third party, and change of management (Royal Proclamation 2001; Santiprabhob 2003; TAMC 2005c). The TAMC could also enter into joint ventures and hold shares in companies, as long as the arrangement had both “clear objectives” and enabled the TAMC to “add value to and facilitate the management of assets for sale by TAMC” (TAMC 2005c). If a business restructuring plan continued to the end of its term, “the debtor and guarantor [would] be released from any remaining loan obligations” (Santiprabhob 2003).

For viable debtors, the TAMC first attempted debt restructuring or business reorganization. However, if it was determined that the borrower was unable to repay the debt or that the borrower’s business was not sustainable, the TAMC was able to, “as a final resort,” sell the assets. The TAMC had the authority to collect and enforce loans with property as collateral (TAMC 2005c).

The TAMC hired four independent asset managers to support debtors whose cases were under foreclosure or final receivership. The TAMC managed assets received through foreclosure, final receivership, or debt repayment through the transfer of assets by adopting an asset-type-based strategy. For “complete and saleable projects,” the TAMC sold the assets through its website, public auctions, or in partnership with other institutions. For unfinished real estate projects with high potential, the projects were developed in cooperation with the private sector through joint ventures, property funds, or special purpose vehicles that enhanced the value of the property For low-income housing projects, the development was to be completed in coordination with government agencies like the National Housing Authority (BOT 2003).

In order to enforce the sale of collateral, the TAMC was required to send a notice to the borrower notifying them of the decision to enforce the debt and requiring full repayment within one month (TAMC 2005c). The TAMC was required to inform the borrower that the failure to repay allowed the TAMC to dispose of the property (Royal Proclamation 2001). If the debt was not repaid, the TAMC then determined the liquidation method. If the assets were to be transferred to the TAMC, the TAMC had an appraisal done on the property to determine the amount to be credited against the borrower’s outstanding debt (TAMC 2005c). If the TAMC decided to proceed with the sale of the asset, the TAMC organized a public auction to sell the property; the TAMC was required to provide advance notice to the public regarding the auction. If the TAMC determined that an alternate method “would be more beneficial to TAMC and the debtor, it [could] choose to dispose of the property by other method, or it [could] accept the transfer of the said property at a price not lower than the price receivable from the sale by public auction in lieu of the disposal” (Royal Proclamation 2001).

The decree that established the TAMC required it to be wound down 10 years after its establishment and fully liquidated 12 years after its establishment (Royal Proclamation 2001). Seven years after it began operations, the TAMC proposed a liquidation plan to the MOF and discussed profit- and loss-sharing arrangements with transferring financial institutions (TAMC 2010). A liquidation committee was appointed upon the decision to dissolve and liquidate the TAMC (Royal Proclamation 2001).

To liquidate the remaining portfolio of the TAMC, the original transferring institution had the first right to purchase the assets it transferred (USDC 2011). Any remaining assets were purchased by the Sukhumvit Asset Management Company or the Bangkok Commercial Asset Management Company (USDC 2011). SAM and BAM were two state-owned AMCs that were established in the aftermath of the 1997 financial crisis (Santiprabhob 2003). BAM purchased 135.4 billion baht in impaired assets from the TAMC in 2012 (BAM 2012). In 2012, SAM reported asset transfers worth 330 billion baht in bad loans and 22 billion baht in NPAs from the TAMC (Chudasri 2012).