Advance Blog

May 8, 2020
MAC Capital

We have seen this before……..1997, 2008 and now 2020 painful memories indeed….. Are there any lessons from the past?

                   Here are a few thoughts on how we may come out of this crisis……………………………………

Don’t pay and don’t run away” is a famous saying from a victim of the 1997 crash in Thailand. He didn’t run away and eventually settled with his bankers and creditors (including using over USD 100 million raised in a subsequent IPO our team led). He recently sold one of his businesses for over Baht 60 billion!

It is quite common to reminisce with old friends in Bangkok about how we used all the tools in the (financial restructuring) toolbox to battle our way through the economic turmoil which was post-1997. It is surprising how many of us survived, even thrived after the crisis. Many rebuilt and even expanded their businesses to what are now multi-billion Baht empires.

How did they achieve this and what were the lessons learned?

In 1997, Thailand was Asia’s Wuhan….the focal point of the origin of the Asian Financial Crisis.  56 finance companies were closed on 1st July 1997 and over the next few months the Stock Exchange Index fell from over 1,600 points to 297 points and the Baht fell from 25 Baht to the USD to Baht 55.

Working with the IMF (and accepting its USD 18 billion rescue package), the Thai Government realized that it would need to implement the IMF’s “recommendations” to improve its financial system. Soon after, the Thai SEC was formed, the outdated Public Companies Act was completely over-hauled, new Bankruptcy Laws were implemented, and banks liquidity ratios and lending policies were completely revised. The platform for recovery was created.

The private sector also did its bit. Whilst we all scrambled for solutions to the multitude of liquidity, legal and structural problems, there were white (well perhaps grey) knights out there. Cash was available for the right deals, in the form of private placements in listed companies, structured loans and convertibles, sales of assets and businesses and those banks which were not closed were recapitalised. Debt “haircuts” and debt restructuring deals using the Bankruptcy Courts were also negotiated.

Yes, some businesses were closed forever, some saw control change hands, and some went into bankruptcy……and this will happen again during the current crisis. Indeed, if businesses cannot withstand this financial shock, it is best they close rather than extend the pain.

The question is what should you do now?

We suggest that you do not panic…. We realise that is easy to say and perhaps more difficult to do…but panicking does not help.

The best place to start is to fully assess your position, including to prepare detailed cash flow budgets, asess what debtors may be difficult to collect, what short term payments are essential, what costs can be cut, what your revenue prospects for the next six months are? What is your possible cash shortfall?

Armed with this background, you may wish to ask your accountant to review your budgets and plans to ensure they are reasonable.

Then you need to assess your options…how do you plug that shortfall?  Who do you talk to? What will your business look like post-restructuring? What can you offer financiers in terms of repayment plans and security? When do you talk to your bankers? What new government incentives may apply to your business? The questions are simply but the answers will be complex.

These issues are best addressed with a professional restructuring specialist. We would be happy to recommend parties who could help if required.

A few final thoughts…. What we feel we learnt from 1997 and 2008?

  • There are pools of cash out there which can be accessed for the right deal.
  • Move quickly….the sooner you move the better chance you have of accessing the cash pool.
  • Be prepared. You must have a professional presentation to show investors. An ill-prepared investor pitch may ruin your chances of success.
  • Make hard decisions early. Holding on to excess staff or loss-making divisions will only waste your precious cash reserves.
Robert W. McMillen Chairman and CEO, MAC CAPITAL
R.M. Sriram Director, MAC CAPITAL
Lalida Rojanavasee Director, MAC CAPITAL
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