Aviruth Wongbuddhapitak knows the dangers of unhedged currency exposure as well as anyone. The Siam Cement Public Company, of which he is vice president in charge of corporate finance and administration, went into the Asian economic crisis with around $5 billion of foreign borrowings, $4.2 billion of which was in US dollars. The subsequent devaluation of the Thai baht from Bt25 to the dollar to Bt40 wiped out around Bt60 billion ($1.44 billion) of shareholders’ equity.

For Siam Cement, Thailand’s biggest industrial group, it has been a case of once bitten, twice shy. By end-2000 the company’s foreign debt is expected to be around $700 million – in line with the group’s net export revenues – or Bt28 billion of its Bt170 billion total borrowings. Although the company has been restructured, creditors have not had to take haircuts. Instead, foreign debts have been brought down using the proceeds from disposals of non-core businesses and refinanced via the issue of baht debentures.

Since the beginning of 1999, the company has issued Bt90 billion of debentures, with the latest Bt15 billion tranche sold only last month. Whereas the Bt75 billion issued in 1999 and March 2000 went solely towards the repayment of foreign debts, the most recent issue was used to refinance both dollar and baht borrowings. That, says Wongbuddhapitak, is because this latest transaction was aimed at cost savings, not the reduction of foreign currency risk. “Including the fees [pre-payment fees etc], there should be a saving of about Bt270 million baht on this transaction alone. That was the real objective of this financing,” he says.

The loans being refinanced by the latest bond issue fall due in two years time and bear interest of almost 10% a year, against which the two-year debenture issued last month has a 5.75% coupon and costs less than 6% a year all in. Wongbuddhapitak says the scope for further cost-saving refinancings is limited. “Most of the bank debt left with us is long term. In order to prepay that and to match the maturity you have to issue a long term bond, but in Thailand long term bonds are not popular. There is less of a market for this paper and you have to pay a premium to access this demand so there are no savings,” he says. Existing debt repayment obligations pretty much tie up available cashflows for the next five years, which for Thai investors is the long term.

In addition, the company has to avoid turning the screws on its creditor banks too much. “We have to keep some relationships going with our bankers. During the crisis they helped us and now is the time we have to maintain those relationships and to reciprocate what they have done for us in the past. Right now they are in a poor position; they have money but they cannot lend,” he says. “We may need the banks again in the future if we need to expand more when the economy recovers.”

While Siam Cement has been busy refinancing, the sale of non-core assets has been too slow for some analysts’ liking and management’s commitment to the process has been called into question. “We are committed to this kind of restructuring and reform – but tell me how to get buyers. If investment banks bring me buyers [with sensible offers] we will pay them some fees,” says Wongbuddhapitak. So far, only firesale offers have been tabled, he adds. “What foreign investors are looking for are distressed assets … Our businesses are not that type; they are on-going businesses.”

Earlier this year, Siam Cement appointed Salomon Smith Barney to find an acquiror for certain printing and writing paper subsidiaries. Since the start of 1999 the company has also deconsolidated Bt40 billion of non-core assets and expects to raise another Bt30 billion via sales by the end of next year. For the time being, the need to complete the sales is not that pressing. Siam Cement’s operating cashflows are sufficient to meet debt repayments and pay down around Bt15 billion a year of the company’s borrowings. Furthermore, in its three core business areas, cement, petrochemicals and pulp and paper, existing capacity is more than sufficient to meet the demands of any recovery in the Thai economy.

Wongbuddhapitak says Siam Cement’s petrochemicals and paper production facilities are running at full capacity, with a third to a half of output being exported, while its cement works are running at around 65% of capacity and just over a third of this is being sold abroad. “There is no need for funds because there is no need for capacity expansion,” he adds. The need for more funds will, however, arise before the company finds itself solely serving the domestic market. “In the future we may have to maintain a certain amount of export business. We have learned our lesson about the risks of focusing on the domestic market and ignoring the export market. When the crisis hit, we had to turn to the export market and it took time to do this,” says the finance chief.

Should the Thai stockmarket improve, the need to proceed with disposals could become even less pressing if Siam Cement decides to issue new shares. Twice in the last year the company has scrapped plans to sell 40 million new shares – in September last year citing weak investor demand and in January saying there was no longer any need for a fund-raising given the group’s improving finances. The company had been hoping to get the shares away at Bt860 to Bt900 apiece, with some reports suggesting a figure in excess of Bt1,000 was being targeted. Regardless, new share issuance will not be on the agenda again until there is a substantial recovery from the current share price level of around Bt270.

Jiraporn Bumrungchatudom, analyst at BNP Paribas Peregrine, says: “If the share price gets above Bt800, Siam Cement will probably look at the possibility of a share sale again. I would say fair value for the shares is Bt600 to Bt700 in the next 12 months,” she adds. In part, the share price weakness at the moment reflects muted expectations for demand growth in the Thai cement market as well as concerns high oil prices will hit the company’s bottom line.

For the six months ended June, Siam Cement reported a net profit of Bt1.42 billion on revenues of Bt70.48 billion, compared with a profit of Bt2.22 billion on turnover of Bt54.28 billion for the same period last year. Interestingly, cement was the smallest contributor among the three core business divisions in terms of both earnings and sales, having achieved a net profit of Bt611 million on sales of Bt11.59 billion. The petrochemicals division achieved a net profit of  Bt1.23 billion on sales of Bt19.24 billion and the paper and pulp operations a net profit of Bt1.64 billion on sales of Bt13.17 billion.

Despite the reduced importance of its cement operations, Siam Cement is unlikely to be changing its name any time soon. The name was given to the company when it was established in a Royal Decree issued by King Rama VI in 1913. “It’s a sensitive issue … We have discussed a lot about whether or not we should still use the name but I don’t think anyone will dare to make any proposal for a change; maybe the next generation will but not this generation,” says Wongbuddhapitak.

Were a name change proposal ever tabled, there might be the objections raised by the company’s largest shareholder, the Crown Property Bureau, which is the investment arm of the Thai royal family.