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Thai shares likely to trade cautiously

BANGKOK: Thai stocks are expected to trade cautiously this week ahead of the March 15 outcome of a landmark court case involving the nation's largest debt defaulter, Thai Petrochemical Industry Plc (TPI) and its creditors.

The case is seen as an acid test of new Thai bankruptcy laws and the court's ruling would have an impact on the health and future of the entire Thai banking system, analysts said.

"The TPI case is going to be the dominating factor in the market next week," said Bill Anderson, head of sales at Seamico Securities.

"Most foreign investors are awaiting its resolution before deciding to enter or exit the Thai market," he said, adding that it would act as a barometer for foreign investors to decide whether or not to participate more in the Thai market.

TPI is involved in a legal battle with 147 creditors over the restructuring of $3.4 billion in debt on which it has defaulted since 1997. The creditors want to take over management control while TPI is resisting. The court will rule on this issue.

The banking sector is likely to be the loser or beneficiary depending on the court ruling.

Analysts say if the case goes in favour of creditors, foreign funds, which have this year exited in droves, would likely flow back into the country. Banking shares would surge.

They said a positive pro-creditor signal if issued by the court would send a stiff message to current stubborn debtors in other debt revamp cases to restructure their debts or face a similar fate.

"Yes, this would be a stern indication to the market that stubborn debtors should restructure. We could see non-performing loans decline further," said Preeda Laocharoenwong, banking analyst at Merrill Lynch Phatra Securities.

"This should give a much needed boost to the fundamentally undervalued and oversold banking shares," he added.

On the other hand, if the court ruled in favour of TPI, analysts said they were recommending that investors exit their positions in the badly hit banking and finance sector.

"If the outcome is in favour of TPI we could expect the market to fall below 300 points as foreign money would exit further," Anderson of Seamico Securities added.

Others agreed saying that the chain reaction of the outcome of the TPI case could spell disaster to what is seen as a gradually recovering economy after two years of recession.

"If the case is in favour of TPI, it would be a very serious issue for Thailand and there are fears that other debtors could follow. This would not be supportive of the banking and the macroecnomic recovery," Preeda added.

Analysts expect the SET index to trade in a 400-420 point range until the TPI ruling is made. A positive outcome could propel the index to 450-500 points later this week but a negative outcome could push it down to a shaky 300 points.

On Friday the composite SET index finished up 9.17 points or 2.33 percent at 402.40 in active turnover of 8.48 billion baht.

Average daily turnover volumes for the week rose over 11 percent to 6.19 billion baht, up from 5.55 billion for the week ending March 3.

Foreign investors who were net sellers of 3.13 billion baht ($83 million) of Thai stocks in 1999 have stepped up their activity and so far this year sold a staggering 15 billion baht.

Fears of chain reaction and collapse of the entire financial system has even driven some market players and analyst to seek divine intervention in the upcoming court case.

"I don't want to imagine the impact of the chain reaction that could be created by an unfavourable decision. Let's all pray that things turn out in a way that would benefit Thai society as a whole," a local analyst said.-Reuters