Thai Petrochemical Predictions
Show a Need for Fresh Capital

By NICK CUMMING-BRUCE
Staff Reporter of THE WALL STREET JOURNAL

BANGKOK, Thailand -- A new earnings forecast for debt-stricken Thai Petrochemical Industry PCL indicates it will need to raise about $750 million in new capital in the next five years, some of it from sales of noncore assets.

TPI, Thailand's biggest corporate defaulter, with outstanding debt of $3.5 billion, can expect to generate a total of about $2.1 billion in operating earnings up to the end of 2004, according to the forecast prepared by Effective Planner Ltd., a subsidiary of Australian debt-workout specialists Ferrier Hodgson.

Creditors chose Effective Planner to take control of TPI and to draw up a plan to clear its outstanding debts of $3.5 billion after two and a half years of negotiations with TPI management on debt restructuring collapsed in January. Effective Planner expects to complete the plan by the end of July, said its managing director, Anthony Norman.

After a two-month review, Effective Planner projects TPI operations will earn $280 million this year and $260 million in 2001, $420 million in 2002, rising to $680 million in 2003 before dropping back to $510 million in 2004. "I interpret that as encouraging," Mr. Norman said.

The projected earnings are broadly in line with expectations contained in an initial debt-restructuring deal agreed upon by creditors and TPI in early 1999, and they dispel concerns that a subsequent rise in crude-oil feedstock prices might force the company to try to raise more capital from external sources.

The previous deal required TPI to reduce its debts by $1.5 billion in the next five years, and on the basis of the new cash forecasts, a new plan is expected to be similar. Mr. Norman said that under the previous plan, half of the debt payment would come from operating earnings and the balance would come from new capital raised from investors and from the sale of noncore assets. He indicated that the new plan would likely be similar.

Completion of the cash flow forecasts clears the way for Effective Planner and TPI's management, led by its founder and principal shareholder, Prachai Leophairatana, to start negotiating over how much capital the company can raise from investors and how much from noncore asset sales. Bitter disagreement between Mr. Prachai and his creditors on these issues precipitated the final breakdown in their previous negotiations.

Mr. Prachai had hoped to avoid asset sales by raising $1 billion in new capital from mainly institutional investors, but people familiar with the situation believe sharp falls in Thailand's equity market this year cast doubt on the feasibility of attracting such funds, ensuring the company will need to sell some assets. Effective Planner has received "more than a dozen" inquiries from investors, Mr. Norman said, but is still studying with TPI management which assets are essential to maintain the economic benefits of integration.

Since taking over TPI, Effective Planner has given it the go-ahead to complete a new 150,000 barrels-a-day refinery at a cost of more than $10 million, said Barry Murphy, a board member. The new refinery will come into production in September, but TPI will also close its existing 65,000-barrels-a-day refinery to avoid oversupply of product, he said.