Rarely does good news come so poorly packaged. Thailand's biggest corporate debtor, Thai Petrochemical Industry, was declared insolvent last week by a Thai bankruptcy court. Oddly enough, that is a welcome development. The decision allows creditors to take over the company, restructure it and get back to business. The ruling was hailed by foreign investors, since it clears the way for a real recovery in the Thai economy.
TPI is Southeast Asia's largest petrochemical complex. Unfortunately, its size is rivaled by the size of its debt, a towering $3.5 billion, which it had not been able to service since the baht crisis hit in 1997. Yet TPI's owners, the Leophariatana family, denied the company was bankrupt, arguing that assets exceeded liabilities, which is the traditional Thai standard for solvency. Management agreed to a restructuring plan a year ago, but failed to implement it for fear of losing control of the business. Other companies have adopted similar stalling tactics as economic prospects brightened. As a result, foreign investors have become increasingly wary of investing in the country.
The Thai bankruptcy court rejected TPI's claim. Instead, it adopted a different benchmark -- whether debt could be serviced from cash flow, a measure more in line with international standards. Investors were also heartened by the court's rejection of evidence from the company's auditor and its reliance on neutral, court-appointed accountants.