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Global Markets

World Accounting

04-Mar-09
14:02 TMB Sells 19.8 billion in NPLs and NPAs to BAM

04-Mar-09
14:02 TMB Bank: Bangkok Commercial Asset Management makes bid to purchase majority of USD 1.3bn non-performing loan and asset portfolio

Bangkok Commercial Asset Management [BAM] is attempting to buy most or all of TMB Bank’s portfolio of non-performing loans and assets, two sources familiar with the situation said.

The government-owned AMC put in bids for all available tranches in the second round of TMB’s auction, for which the bid date was last Friday (27 February), the sources said. The bank’s board will meet tomorrow (4 March) to decide whether to accept the prices offered, according to a source close to TMB.

BAM is 100%-owned by the Bank of Thailand’s Financial Institutions Development Fund.

As reported, the first round of TMB’s auction took place on 21 November 2008 in the midst of severe political turmoil, and only one tranche was sold out of the 18 on offer. The portfolio in the second round was the same as the earlier one, except for the THB 3.4bn (USD 94m) tranche sold to Sukhumvit Asset Management. The remaining portfolio contained 10 tranches of NPLs with an outstanding principal balance [OPB] of THB 31.9bn, and seven tranches of NPAs with a total appraisal value of THB 15bn

Two domestic and two foreign investors are believed to have done due diligence in the second round, the sources said. The second domestic investor was Sukhumvit Asset Management [SAM], a third source familiar with the situation said. However, the three investors other than BAM appear to have bid very conservatively or not at all, the third source and a fourth source with knowledge of the situation said.

The source close to TMB said that the prices offered by BAM for the NPL and NPA tranches appear to be reasonable, but that the sale may hinge on the structure of the bid because BAM has offered to pay in promissory notes rather than cash. The source declined to reveal the margin or tenor of the proposed promissory notes.

The prospect of a being paid in promissory notes raises a number of questions for the seller, the fourth source said. Most importantly, it would have to be determined if this kind of sale would allow the bank to take the bad assets off its books immediately, as it would in the case of a cash sale. Also, even though BAM is a government entity, its promissory notes would not necessarily be guaranteed by the Bank of Thailand or any other official parent entity.

Another person with experience in the Thai NPL market said, however, that non-cash payment would not necessarily make it more difficult for TMB to get the bad assets off its books. The deal could be structured so that BAM receives a loan (from TMB or another institution) which would be used to buy the portfolio, so TMB’s payment for the portfolio would not be linked to the repayment of the loan or the resolution of the NPLs and NPAs. However, the same source noted that payment by anything other than cash would likely require the bidder to pay a high price for the portfolio.

According to one of the two sources familiar with the situation, TMB has indicated that it may opt to leave some tranches unsold and negotiate with other potential buyers on an individual basis. He added that the exact volume of loans bid on by BAM is unclear, because the terms of bidding allow investors to “reverse cherry-pick”, or choose to exclude certain accounts from their bids. This means that while BAM may have bid for most or all of the tranches, it may have actually bid for a much smaller proportion of the accounts.

As reported, Baker Tilly Corporate Advisory Services (Thailand) is TMB's financial advisor. Source: Debtwire Intel. Grade: Strong evidence
Intelligence ID: 771791

Ilya Garger
Debtwire

Kbank news - Bangkok Post

EXIM news - Bangkok Post

The Sarbanes-Oxley Act ("Sarbox") was signed into law on 30 July 2002 as a direct response the collapse of Enron and other listed public companies in the United States. Although most are aware that Sarbox seeks to rectify poor accounting disclosure in the United States, few are aware that Sarbox also presents significant challenges and obligations for management of foreign subsidiaries of public listed US companies and their auditors.

Within the United States, Sarbox created a private sector non-profit organization, the Public Company Accounting Oversight Board ("PCAOB"), to oversee and investigate the audit of public companies.

Sarbox also created a fundamentally different approach to the audit of public companies in the United States including: (i) pre-eminent role of the audit committee in the company's relationship with the auditor;

(ii) approval of audit and non-audit services by the audit committee;
(iii) prohibition on the provision of certain non-audit services by the company's auditor such as bookkeeping, financial systems design and implementation, appraisal and valuation services, actuarial services, internal audit, human resources, broker/dealer and investment banking services, and legal and expert services unrelated to the audit;
(iv) non prohibited services can be performed by the auditor with prior approval of the audit committee;
(v) rotation of lead partner and audit review partner every 5 years;
(vi) mandatory second partner review and approval of financial statements; and
(vii) management "sign off" of internal controls.

Outside the United States much has been made of the requirement for foreign auditors to register with PCAOB in order to provide audit services to the subsidiaries of public companies listed in the United States. However, the impact of (vii) that will be most widely felt both inside and outside the United States.

Sarbox makes it clear that management are now required for the first time to provide written assurances concerning the effectiveness of internal controls. Sarbox provided a framework requiring listed public companies to provide an internal control report in each annual report. The internal control report

(i) states the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and

(ii) contains an assessment of the effectiveness of the internal control structure and procedures.

So what does this actually mean for management? Management firstly needs to be aware of the deadlines. The United States Securities and Exchange Commission have extended the deadlines for compliance with the internal audit report as follows:

(i) US listed public companies with market capitalization over US$75 million - for fiscal years ending on or after 15 November 2004; and
(ii) other US listed companies - on or after 15 July 2005.

The SEC has now issued final rules in connection with the definition of internal control and management's expected response to the new framework developed by Sarbox.

Although it is not entirely certain how these rules will impact over the next few years, the main considerations for management flowing from the new rules are as follows:

• companies with subsidiaries outside the United States must nevertheless evaluate internal controls in these locations;
• failure to document to document the system of internal controls or the evidence used in making the assessment should be considered a weakness in internal control;
• positive testing of internal controls on a periodical basis must be performed to make the assessment required by Sarbox;
• simple enquiry about existence and effectiveness of internal controls may not be enough to comply with Sarbox;
• material misstatements that were not identified by management are ordinarily indicative of the existence of a material weakness in internal control;
• the assessment of internal controls should be made by reference to external guideline and criteria such as Treadway Commission's Internal Control-Integrated Framework also known as COSO Framework;
• all significant deficiencies and material weaknesses need to be communicated in writing and disclosed publicly;
• the company's auditors may be utilized to help in the documentation of controls but management mains responsible for making its own assessment of the effectiveness of internal controls;
• when using outside service organizations (e.g., data processing, payroll processing, etc), management should consider the activities of the service organization when making an assertion about the effectiveness of the company's internal control over financial reporting;
• management must give ample consideration to the timing of implementing significant changes in the internal control system during the year and the impact of those changes on its ability to make an assessment of the system;
• management is not permitted to conclude that the company's internal control over financial reporting is effective if there are one or more material weaknesses in the company's internal control over financial reporting;
• management is required to identify the evaluation framework used by management to assess the effectiveness of the company's internal control over financial reporting;
• foreign companies listed in the United States are subject to the internal reporting framework.
  
  

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