Report No. 336-TH FI pL Appraisal of Industrial Finance Corporation of Thailand May 3, 1974 Regional Projects Department Asia Regional Office Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report CURr EQUIVALENTS Until July 14, 1973: 1B$1 = Bt. 20.8 From July' 15, 1973: VS$1 Bt. 20.0 Bt. 1 = US$0.05 Bt. 1 million a US$5o,90o Bt. 1 billion - US$50 million ABBRBEVITION AsDB Asian Development Bank BOI Board of Investme3nt BOT Bank of Thailand KfW Kreditanstalt ftir Wiederaufbau NESDB National Econmic and Social Developmnt Board SIFO Smal1 Industries Finance Office 11AID United States Agency for International Deelopnnt APPRAISAL OF INDUSTRIAL FINANCE CORPORATION OF THAILAND Table of Contents Page BASIC DATA SUMMARY i I. INTRODUCTION 1 II, INSTITUTIONAL ASPECTS 1 Objectives and Policies 1 Ownership 2 Organization, Management and Staff 2 Procedures 4 Relations with the Government and the Business Community 5 III. OPERATIONS, FINANCIAL PERFORMANCE AND ECONOMIC IMPACT 6 Loan Operations 6 Equity Investments and Guarantees 8 Foreign Exchange Risk 8 Interest Rates 9 Resources 9 Financial Position and Profitability 11 Economic Impact of IFCT Operations 13 IV. PROSPECTS 16 General Outlook 16 IFCT Strategy 16 Business Forecasts 17 Resource Needs 18 Financial Projections 19 V. CONCLUSIONS AND RECOMMENDATIONS 20 This report is based on the findings of a mission consisting of Messrs. Zamir Hasan, Bjorn Hansen and Rainer Ullmann, which visited Thailand in September 1973, and a follow-up mission consisting of Bjorn Hansen, which visited Thailand in March 1974. List of Annexes and Chart 1. Environment and Industrial Finance 2. Statement of Operating Policies 3. List of Shareholders as of December 31, 1973 4. Board of Directors as of December 31, 1973 5. Loan Approvals, Conmmitments and Disbursements, 1970 through 1973 and Cumulative to December 31, 1973 6. Analysis of Loan Comnitments by Size, Duration and Geographic Distribution, 1970-73 and Cumulative to December 31, 1973 7. Loan Commitments by Industry, 1970 through 1973 and Cumulative to December 31, 1973 8. Interest Rates and Charges as of December 31, 1973 9. Foreign Exchange Risk.Agreement Between IFCT and the Ministry of Finance 10. Resources as of December 31, 1973 11. Analysis of Arrears 12. Surmarized Balance Sheets as of December 31, 1969-1973 130 Surmarized Income Statements for 1969 through 1973 14. Projected Approvals, Comditments and Disbursements, 1974-1978 15. Projected Balance Sheets, 1974-1978 1&. Projected Statements of Income, 1974-78 171 Projected Cash Flow Statments, 1974-78 1A. Estimated Disbursement Schedule for the Proposed Loan CHART Organization Chart as of March 1, 1974 INDUSTRIAL FINANCE CORPORATION OF THAILAND BASIC DATA 1. Year of Establishment: 1959 2. Ownership (December 31, 1973) Number of Shares (Par Value Bt. 1000) Percentage of Total Domestic 78,725 52.5 Public Sector (24,592) (16.4) Private Sector (54,133) (36.1) IFC 8,000 5.3 Other Foreign 63 275 42.2 100.0 3. Bank Group Financing (a) IFC Investment in IFCT's Share Capital Investment Number of Cost per Total Investment No. Approved shares share at Cost (US$) (US$) 71-TH 3/10/64 4,000 48.28 193,108 185-TH 12/22/70 4 000 47.85 191 388 Held by IFC at March 31, 174 8_0__ 7.07 (b) IBRD Loan Status as of March 31, 1974 (in US$ '000) Date Rate of Net Author- Dis- Out- Loan No. Signed Interest Amount ized bursed standing 370-TH 3/11/64 Variable 1,045 1/ 1,045 1,045 0 4. Operations (in Bt. million) (a) Loans Approvals: 1960-1970 1971 1972 1973 Total Local Currency 312.2 93.9 56.4 8774 550.0 Foreign Currency 273.9 130.6 120.3 182.3 707.0 Total: 1761 22. T76 2 1270 Commitments: Local Currency 309.0 66.7 67.7 22.5 465.9 Foreign Currency 259.7 116.8 136.3 128e7 641,5 Total: 5687 3 204.0 1 121107.4 / Approved loan amount was $2.5 million. 1960-1970 1971 1972 1973 Total Disbursements: Local Currency 293.6 71.5 48.o 32.6 445.7 Foreign Currency 207.5 85.8 137.1 63.L 494. Total: 501.1 157.3 185.1 96.1 939.7 (b) Equity Investments Acquisition of portfolio 0.3 - 0.1 0.4 5. Financial Performance (in Bt. million) Year Ended December 31 1971 1972 1973 (a) Total assets 582.0 697.9 768.7 of which loan and equity portfolios (464.o) (586y4) (601.1) Long-term debt 425.o 527.6 .533.8 of which Government ( 81.1) ( 79.6) ( 77.9) of which foreign currency borrowings (227.2) (234.4) (206.5) Equity 131.3 144.1 205.2 Long-term debt/equity (times) 3.8 4.1 2.9 (b) Earnings before interest, provisions and tax i/ as % of average total assets 8.1 7.8 7.5 Profit after tax and provisions as % of average equity 12.6 15.8 12.2 Reserves and provisions as % of loan portfolio 8.5 8.9 10.4 Financial expenses as % of average total assets 4.3 4.4 4.6 Administrative expenses as % of average total assets 1.5 1.5 1.5 (c) Book value as % of par value 131.3 144.1 136.8 Dividend as % of par value 9.0 9.0 9.0 Dividend pay-out ratio 62.9 41.4 48.8 j IFCT is tax-exempt APPRAISAL OF INDUSTRIAL FINANCE CORPORATION OF THAILAND SUMMARY i. Thailand's economy recovered in 1973, after a slow-down which started in 1969. Owing to improvements in the terms of trade for key exports, the overall balance of payments showed a surplus in 1972 and 1973 compared with deficits from 1969 to 1971. Total fixed investment increased by 5% in real terms in 1973 after decreases in 1971 and 1972. The oil crisis has been a problem of prices rather than of supply. Improved export earnings on Thailand's major export commodities are, however, likely to offset, for the next two years or so, the higher oil bill. ii. With a share in GDP at current factor cost of about 14%, manufactur- ing is the second largest sector in the economy after agriculture, and has averaged a growth of 10% per annum over the period 1967 to 1973. Consumer goods industries, which are mainly small size and family owned, dominate the industrial sector, which is concentrated in and around the greater Bangkok area. Thailand has few quantitative restrictions on imports, but many consum- er goods and intermediary products are protected by tariffs of up to 40-60%. Some industries are competitive in world markets, and manufactured exports increased sharply between 1970 and 1973. The Government seeks to encourage, by an incentive scheme administered by BOI, the growth of export-oriented and labor-intensive industries and the reduction of regional disparities. iii. Institutional finance in Thailand is dominated by the commercial banks. Their lending policies are not venturesome and they base their lending on collateral rather than on the merits of projects. Commercial banks and suppliers' credits are, besides IFCT, the only major sources of finance for industrial investment. Finance companies, investment banks and the capital market provide only limited finance to the manufacturing sector and as with the commercial banks, mainly to large enterprises in the Bangkok area. The Small Industries Finance Office makes term-loans to small industrial enterprises, but on a modest scale. iv. IFCT is the only specialized institution that provides term-loans to the industrial sector. Its lending rate is 10-1/2% or 1% below the prime rate of the commercial banks. IFCT would lose business if it raised its lending rate, because the commercial banks have minimal disclosure require- ments and because suppliers' credits are offered at 7 to 8%. However, the Bank of Thailand is presently engaged in a dialogue with the IMF over the interest rate structure in Thailand, and IFCT's lending rate of 10-1/2% should be viewed in connection with this larger dialogue. IFCT has assured the Bank that it will keep its lending rate under frequent review to ensure that it is appropriate on financial and economic grounds. v. IFCT, a largely privately owned institution established in 1959, played a modest role in the sixties, but during the last three years it has been able to increase its volume of business considerably, in both relative and absolute terms. In relation to loans by commercial banks, IFCT's total outstanding loans to the manufacturing sector rose from 4% in 1965 to 8% in 1968 and to 11% in 1973. Its influence on project formulation now permeates directly some 10-15% of Thailand's investments in the manufacturing sector and, indirectly, more. vi. IFCT's loan operations are well diversified in various industrial branches and, although it has financed some large projects over the last thire years, the majority of its loans are for small- and medium-sized enterprises.. Its loan operations reflect the geographical distribution of Thailand's industries and are concentrated in the greater Bangkok and Central regions. Sixty percent of IFCT's portfolio is accounted for by new ventures, nearly half of which were undertaken by new entrants in the manufacturing field. The economic rate of return shown by a sample of fourteen IFCT financed projects (14% of the total number) is satisfactory. vii. Mr. Sommai Hoontrakool, former General Manager of IFCT and more recently Deputy Finance Minister, returned to IFCT as its Chairman in December 1973. The present General Manager, Dr. Prayoon Kanchanadul, formerly a civil servant, succeeded Mr. Sommni Hoontrakool in November 1972. The vacant post of Deputy General Manager was filled in March 1974. IFCT has three foreign advisors. Their initial two year terms, which would have expired in 1974, have recently been extended for one more year. viii. While the middle management is competent and the general quality of staff is good, there is room for upgrading. IFCT's management realizes this, is looking for an experienced economist and has already hired a senior engineer. It has also expressed its desire for the Bank Group's advice and cooperation in improving its operations through staff training and the upgrading of appraisal techniques. ix. IFCT's portfolio is satisfactory, amd its overall financial position is sound. Its capital structure has been strengthened by a Bt. 50 million share capital increase completed in September 1973. IFCT's financial structure, profitability and debt service ability are expected to remain satisfactory. x. IFCT expects to commit Bt. 2,472 million during 1974 to 1978 in loans and equity investments; Bt. 684 million in domestic currency and Bt. 1,788 million equivalent in foreign exchange. Considering the level of approvals in 1971-73 and IFCT's pipeline of projects, the forecast appears realistic and should be within IFCT's reach. IFCT's local currency resources are sufficient to undertake the baht commitments it has projected. For imports, IFCT estimates that it will need foreign currency resources of about US$33.5 million to meet its commitment during the period mid-1974 to mid-1976. Loans amounting to about US$14 million wili involve Japanese procurement and therefore could be financed from the tied Special Yen and Japan Ex-Im Bank loans available to IFCT. Resources needed for untied procurement for the same period are estimated at about US$19 million. Some US$7 million of this amount will be provided by the existing and a new KfW loan, the only untied funds now at IFCT's disposal. IFCT will therefore need additional untied foreign resources of about US$12 million. A Bank loan of US$12 million would fill this remaining gap. - iii - xi. IFCT expects to play a more important role over the next five years than in the past in areas which are considered important for the economic and social development of Thailand. It will continue to lend to and assist in the planning and financing of some large-scale ventures, particularly those of national importance. The promotion of smaller projects, especially agro-business projects located in the provinces, is high on IFCT's priority list, and it also plans to increase its equity financing. The overall cost of IFCT's resources is expected to be low enough to provide a margin sufficient to compensate IFCT for the higher risks and administrative costs involved in the more venturesome policies contemplated, while still enabling it to earn a reasonable profit. IFCT intends to strengthen its management and staff, to improve its procedures and operations including the economic appraisal of projects, and to undertake more promotional work. It expects to have a close, beneficial relationtihip with the Bank. xii. With IFCT there is considerable scope for the Bank's traditional role of institution building. The Bank should be prepared to assist IFCT to the extent possible, through close supervision involving somewhat more frequent supervision missions than usual, detailed reviews of sub-project appraisals, support in programs for staff training and recruitment of advisors, when necessary, and continuing advice on IFCT's work programs. The proposed loan would be not only a means of meeting a part of IFCT's capital requiremtents but also, through its administration, a means of assisting IFCT to implement its objectives. xiii. A Bank loan of US$12 million is recommended to enable IFCT to meet a part of IFCT's foreign currency needs for import of machinery and equipment under sub-projects financed by it during the period mid-74 to mid-76. The terms of the loan should be those usually applied for Bank loans to develop- ment finance companies, including the standard commitment charge. IFCT has requested a debt/equity ratio of 6.0:1, debt being defined as total long- term debt including subordinated Government loans. For the reasons given in para 3.22 this ratio is reasonable and is recommended. An initial free limit of US$500,000 is proposed subject to an aggregate free limit of 25% of the proposed loan. The US$500,000 limit should assure that about 75% (by amount) of the loans would require prior approval by the Bank. APPRAISAL OF INDUSTRIAL FINANCE CORPORATION OF THAILAND I. INTRODUCTION 1.01 This report appraises the Industrial Finance Corporation of Thailand (IFCT), a private development finance company, for a proposed Bank loan of $12 million to support private industrial investment in Thailand. This would be the second Bank loan to IFCT; the first loan for $2.5 million was made in 1964. 1.02 IFCT was established in 1959 for the purpose of promoting private industrial development in Thailand. The World Bank Group helped re-organize the institution in 1963 and in the process the Bank made a loan of US$2.5 million and IFC took up 4,000 (US$193,108) of an issue of 30,000 shares in March 1964. IFCT's operations fluctuated considerably both because of management problems and because of the reluctance of potential borrowers to assume the foreign exchangs risk, and only US$1.045 million of the Bank loan was utilized; this amount has since been fully repaid. Since 1970, IFCT's performance has improved and there are good prospects for further improvement. The economic and financial environment is described in Annex 1. II. INSTITUTIONAL ASPECTS Objectives and Policies 2.01 Objectives. IFCT was established by a legislative Act, which has been amended from time to time. IFCr's main objectives, as set out in the Act, are to assist in the establishment, expansion or modernization of private industrial enterprises and to encourage the participation of private capital, both internal and external, in such enterprises. Industrial enter- prises, as defined in the Act, include those engaged in "the manufacture, processing and repair of goods, mining, generation and distribution of electricity or other kinds of power, transportation, tourist industry, construction and land improvement and commercial agriculture". 2.02 The Act authorizes IFCT to provide finance in the form of long- or medium-term loans with or without security, buy, sell and underwrite shares and securities, issue guarantees, manage investments, provide technical assistance and borrow funds in Thailand and abroad. It may, in short, undertake the normal range of activities of a development finance company. In the future, IFCT plans to be more active in financing sectors or projects which in the past have received insufficient attention from financial institutions in Thailand: (i) financing relatively small projects; (ii) financing projects outside the Metropolitan Bangkok area; (iii) financing projects in fields such as agro-business and mining; (iv) promoting projects - 2- which require considerable work and expertise; and (v) investment in equity (paras 4.03 to 4.05). 2.03 Operating Policies. IFCT's Statement of Operating Policies is similar to those adopted by most of the development finance companies associated with the World Bank Group. It contains the usual guidelines for conducting the day-to-day operations of the company on sound and prudent lines, and for maintaining a healthy financial position. The policy statement was last amended in July 1973, mainly for the purpose of redefining its borrowing limit by excluding Government subordinated loans from its borrowing base, with an increase in permissible indebtedness from 3.5 to 6 times its net worth. The statement which is shown in Annex 2 is acceptable to the Bank except for the wording in the last sentence of para 6 which has the effect of valuing foreign exchange liabilities at the rate prevailing at the time they were contracted instead of at the current rate. Also, when the foreign exchange risk agreement (para 3.10) becomes effective, a consequential change will be needed in the wording of para 14. IFCT has undertaken to make the necessary changes. Ownership 2.04 IFCT's initial share capital of Bt. 6.1 million has been increased four times and now amounts to Bt. 150 million; the latest increase, Bt. 50 mil- lion, was completed in September 1973. IFC now holds Bt. 8 million (US$384,496) which is 5.3% of the total. A list of shareholders is shown in Annex 3. Holdings of foreign shareholders (including IFC) amount to 47.5% of the total, holdings of local and foreign banks amount to 73%, of insurance companies to 6%, of investment companies to 5% and of other institutions and individuals to 16%. The latest share capital increase reduced commercial banks' shareholdings from 83% to 73%. The holding of the only Government- owned shareholder, the Krung Thai Bank, increased slightly from 14.5 to 16.4%. Q*anization, Management and Staff 2.05 Organizational Structure. IFCT's internal structure was reor- ganized in 1971. The work is now divided among three departments: the Projects Department, the Operations Department and the Administration Depart- ment. The Projects Department is responsible for appraisal of projects; the Operations Department handles all supervision, research and resource plan- ning; and the Administration Department handles accounting, personnel and legal affairs. The reorganization has streamlined the overall division of labor within the institution. The lines of authority are clearly drawn and the present structure is appropriate to IFCT's needs. IFCT's organization chart is attached. 2.06 IFCT has no branches or regional offices. In view of the em- phasis which IFCT intends to place on financing projects in the less- developed regions (para 4.04), IFCT is now studying plans for establishing three representative offices at regional centres. -3- 2.07 Board of Directors. IFCT's Board comprises nine members includ- ing the Chairman and the General Manager. The Chairman since 1970, Mr. Renoo Suvarnsit, the Secretary General of National Economic and Social Development Board (NESDB), resigned from IFCT's Board in November 1973. Mr. Sommai Hoontrakool was nominated by the Government to succeed him as a member of the Board and he was elected Chairman with effect from December 3, 1973. Mr. Sommai, able and widely respected, had a long career in the Bank of Thailand before becoming IFCT's Managing Director from July 1970 until October 1972. More recently he was the Deputy Finance Minister. IFCT can expect to continue to receive vigorous leadership from its Chairman. Dr. Prayoon Kanchanadul, IFCT's General Manager, is an ex-officio Director. Six of the remaining seven Directors are commercial bankers, reflecting the predominance of commercial banks among IFCT's shareholders. The Board as of December 31, 1973 is shown in Annex 4. The Board usually meets once every month, and besides deciding on policy and other important matters it has the final say in most of IFCT's loan and investment proposals (see paragraph 2.08). 2.08 Executive Committee. The Executive Committee was set up in December 1972 following an amendment of the IFCT Act. The Committee has four members: the Chairman, General Manager and two representatives of the commercial banks (one foreign and one local). The Executive Committee meets routinely every week and is authorized to approve loans not exceeding 5% of IFCT's net worth (about Bt. 10 million). The Committee acts as a screening body for larger loans prior to their presentation to the Board. 2.09 Management. The present General Manager, Dr. Prayoon Kanchanadul, succeeded Mr. Sommai in November 1972. Dr. Prayoon, a career civil serv- ant, was the Under-Secretary of State for Economic Affairs until his retirement in September 1972. He is receptive to advice, and eager to improve IFCT's operations. Dr. Prayoon's contract expires in November 1974 but is renewable. IFCT had no Deputy General Manager until March 1, 1974 when Mr. Waree Bhongsvej, until then Director and Assistant to the Governor, Bank of Thailand, was engaged to fill the vacancy. Mr. Bhongsvej has had substan- tial banking experience and his employment should help IFCT in its efforts to expand its operations and promotional work (para 3.35). 2.10 Staff. IFCT's staff at the departmental level is reasonably competent, and capable of learning new and improved techniques. The senior staff was strengthened by the employment of a senior engineer, Mr. Chamras Chayabongse, in November 1973, but IFCT still needs an experienced economist, for whom the management is presently screening potential candidates. 2.11 IFCT has three foreign advisors: Mr. Sunit Gupta, a Bank staff member on leave of absence, as Financial Advisor; Mr. L. Buescher, Economic Advisor, and Mr. H. Oermann as Engineering Advisor. The initial two-year term of office of Mr. Gupta, who is serving IFCT under UNDP's auspices, expires in April 1974, but will be extended for one more year. The services of Messrs. Buescher and Oermann are provided by the Federal Republic of Germany under a technical aid program. Their initial two-year terms expire in mid-1974 but have been extended for one more year. 2.12 As of December 31, 1973, IFCT had 122 staff members, of whom 65 were professionals. Although the staff turnover has been relatively high - 4 - in the recent past, IFCT has been able to retain its senior and more experi- enced staff members. The turnover was high among newly appointed staff, many of whom decided to undertake further studies or were attracted by higher positions offered by other financial institutions. The general quality of IFCT's staff is good; with proper motivation and training oppor- tunities the staff has potential for further improvement. The staff is generally sufficient in number to deal with a higher level of activities, although, as already noted, some additional selective recruitment is necessary. Procedures 2.13 Appraisal. IFCT's appraisal standards have improved considerably during the last two years or so and, although some weaknesses remain, are now of generally satisfactory quality. The three foreign advisors have made a valuable contribution, and the reorganization of 1971 has also helped to raise IFCT's general efficiency. 2.14 The financial and technical parts of appraisals cover all major aspects although the depth of evaluation and analysis could be improved. The weakest parts of IFCT's project appraisal work are the coverage of marketing and economic aspects. Because statistics on prices and supply are usually not available and because IFCT's clients are normally not among the sophisticated entrepreneurs who are able to undertake detailed market studies themselves, or who can afford to hire consultants to undertake such studies, a thorough and systematic analysis by IFCT is of particular importance. Although IFCT's capa- bility in regard to market analysis has improved, greater depth is required in its appraisal of market conditions. As for the economic aspects, emphasis is put on partial indicators (value added/output, capital/output, capital/ employment, employment creation, balance of payments effects), while no syste- matic attempt has so far been made to calculate the effective rates of protec- tion or the economic rates of return (ERR) as an element in decision-making. The management realizes that IFCT's market and economic analyses need strength- ening and, as already noted, plans to recruit a senior economist. To improve its decision-making process, IFCT has agreed to calculate the ERR for all projects which will receive IFCT finance of Bt 10 million or more. For other projects which are large (fixed assets of Bt. 30 mill or more), but where IFCT finance will be less than Bt 10 mill., IFCT will also calculate the ERR. 2.15 All loan applications go through an initial screening which determines, usually within one to two weeks, whether IFCT will go ahead with a full appraisal. If approved, a team of three (a financial analyst, an engineer and an economist) works simultaneously on the application and prepares an appraisal report. Depending upon the type of the project and its stage of preparation it may take as little as three weeks to prepare the first draft; but usually not all necessary information is readily available, and it takes an average of three months to prepare a full appraisal. This is a reasonable period if IFCT is to maintain relatively high appraisal standards, but it does leave it at a competitive disadvantage towards a commercial bank that bases a lending decision mainly on an assess- nmnt of credit standing and collateral security. Before submission to the -5- Executive Committee, all loan proposals are considered by an Investment Committee, 1/ which contributes materially to improving the loan presenta- tions. 2.16 Supervision. Considerable effort has gone into strengthening IFCT's supervision procedures and staff, after serious arrears developed in 1970. To improve the situation, IFCT initially concentrated its efforts on the problem projects, but has since been able to expand systematic supervision to all projects. A constant difficulty in effective supervision is the reluctance of many clients to disclose information to IFCT. Regular project visits have improved data collection and early detection of problems. All projects in operation are now visited at least once a year by a financial analyst. If a client defaults, project supervision is intensified. Projects at the implementation stage are visited every three months, or before each disbursement, by an engineer and a financial analyst. The present follow-up staff (twelve persons) is adequate to deal with the projects under implementa- tion and in operation. 2.17 Feed-back of information from the follow-up work to the project appraisal staff is presently limited to the transmission of supervision reports to the Project Department. IFCT is planning to increase the use made of follow-up data by undertaking cross-section analyses of several supervision reports for the purpose of comparing, among other matters, actual results with those forecast. 2.18 Procurement and Disbursement. IFCT has well-formulated procure- ment procedures. It requires, in all appropriate cases, that its clients obtain quotations from at least three suppliers. These quotations are carefully checked by the Engineering Division and compared with other projects using similar machinery. IFCT has found that the sponsors in general make good choices; in only a few cases has it been necessary, after advice from IFCT, to change a supplier. IFCT's procurement procedures appear to ensure that suitable machinery is purchased at reasonable prices. 2.19 IFCT's disbursement procedures ensure that the clients first provide their part of the financing. IFCT's disbursements are made in stages and only after checking the physical progress of the project and the relevant documentation. These include invoices, receipts, etc. in the case of domestic loans, and letters of credit and bills of lading in the case of foreign currency loans. IFCT's disbursement procedures appear to be satisfactory. Relations with the Government and the Business Community 2.20 IPCT has good relations with the Government, which for many years has taken a benevolent and often actively helpful interest in IFCT's affairs. Close links and mutual understanding were facilitated in the past by 1/ The Investment Committee comprises the General Manager, the Managers of the Operations and the Project Departments, the three Division Chiefs of the Operations Department and the Division Chief in charge of follow-up. - 6 - Mr. Renoo's dual role as Chairman of IFCT's Board of Directors and Secretary- General of NESDB, and more recently by Dr. Prayoon's connections in Govern- ment circles and his seat on BOI. Cordial relations with the Government should continue with Mr. Sommai as IFCT's Chairman. At the working level, exchanges of views and information between the Government and IFCT are frequent. 2.21 The Government is important to IFCT as a guarantor and supplier or channel of funds and as the author of the industrial policies and priori- ties in accordance with which IFCT has to operate. Current Government plans envisage an expanding role for IFCT in developing export-oriented and agro-based industries, in promoting regional development and 'in devel- oping a capital market in Thailand. There is no indication that the Govern- ment unduly influences IFCT's individual investment decisions. 2.22 Several commercial banks are shareholders of IFCT and their nominees are members of IFCT's Board of Directors. The operations of IFCT and those of some banks and finance companies are complementary and there are prospects of joint financing in appropriate cases. IFCT's relations with some other banks, on the other hand, have been somewhat strained by what IFCT has regarded on occasions as unfair competition. 2.23 Most well-established industrialists have long-standing relations with the commercial banks and seldom look to IFCT for financing. Many not so well established entrepreneurs, however, seek and appreciate IFCT's assistance. The fact that during the last couple of years IFCT has been active in attempts to promote a few large projects which required substantial expertise and experience, has increased IFCT's prestige among the business community. The former Managing Director of IFCT, now back as its Chairman, and the present Financial Advisor are very active in matters relating to the capital market, some of the credit for which has brushed off on IFCT. But to the business and banking communities in general, IFCT probably still appears to be a relatively small institution, although one with professional, ethical and developmental standards and objectives that deserve respect. III. OPERATIONS, FINANCIAL PERFORMANCE AND ECONOMIC IMPACT Loan Operations 3.01 General. IFCT's lending operations through December 31, 1973 are shown in Annex 5. Since its inception IFCT has approved 210 loans amounting to Bt. 1,257 million, committed Bt. 1,107 million (204 loans) and disbursed 13t. 940 inillion. Year-to-year fluctuations have been considerable, reflecting not only the current investment climate but also IFCT's earlier management problems. The trend of business has been upward since 1970, with approvals during the last 3 years greater than total approvals for the period 1960-70. 'The higher levels of approvals in 1971 (Bt. 224 million), 1972 (Bt. 177 million) and 1973 (Bt. 270 million) were helped by the attractiveness of the Special Yen loan 1/ and the involvement of IFCT in a few fairly large projects. 1/ The Special Yen loan, which derives from Japanese reparations payments, is disbursed in Yen, but is repaid in Baht at the rate of exchange pre- vailing at the date of commitment. -7- 3.02 Of the loans committed up to Decem3er 31, 1973, 58% derived from foreign currency resources. This percentage has been higher since 1971 (65%), because of the Special Yen loan which accounted for about 70% of IFCT's foreign currency commitments during this period. The proportion of foreign currency loans would undoubtedly have been higher in earlier years but for the foreign exchange risk problem (see para 3.10). 3.03 SiZe of Commitments. The distribution of loan commitments by size, duration and geographical distribution is shown in Annex 6. The minimum size of IFCT's loans is Bt. 1 million (US$50,000); the upper limit is prescribed in IFCT's policy statement and now amounts to roughly Bt. 50 million (US$2.5 million). 3.04 The average size of IFCT's commitments has been increasing; during the last three years it amounted to about Bt. 10 million (US$500,000),1/ about 50% larger than the average size during the preceding three years. While before 1971 there was no loan of over Bt. 20 million (US$1.0 million), IFCT has committed seven loans of over Bt. 20 million since then. Nevertheless, more than half of IFCT's financing has been for medium- and small-size enterprises: 52% of the number of loans committed since the end of 1970 were below Bt. 6 million (US$300,000) each, and 37% were relatively small loans below Bt. 4 million (US$200,000) each. 3.05 Duration of Loans. On a cumulative basis the majority of IFCT loan commitments averaged 5.6 years by the end of 1970. This average has been the same during the last two to three years although the structure of maturities has changed slightly; while by the end of 1970 loans with maturities of 4.1 to 8 years accounted for 71% of cumulative commitments, they made up 88% of commitments in the years 1971 to 1973. IFCT has not extended any loans for less than two years nor for more than ten years since December 1970. 3.06 Geographic Distribution. IFCT's operations, reflecting the geogra- phical distribution of Thailand's industry, are concentrated in the Greater Bangkok area and the Central region. Of all loans committed, 86% by value (76% by number) are for projects located in Bangkok and the surrounding provinces. IFCT's management intends to make a deliberate effort (para 3.35) to expand IFCT's services beyond the Central region. 3.07 Industrial Distribution. IFCT's loan commitments by industrial sector are shown in Annex 7. IFCT's commitments during the last three years are well diversified among the four large groups of consumer, intermediate, capital and miscellaneous goods industries, each group accounting for no more than 33% of the total: Consumer goods industries accounted for 3;S (Bt. 165 million) mainly because of a sharp increase in loans to food and textiles industries; intermediate goods industries accounted for 33% where investments in non-metallic minerals industries (mainly ceramics and cement) accounted for 17%; capital and miscellaneous goods industries made up 15% and 21% respectively with metal products and transport showing the fastest growth. 1/ Excluding seven loans of over Bt. 20 million, the average would be Bt. 6.4 million (US$320,000). -8- 3.08 New versus Expansion Projects. Of the 99 projects 1/ in IFCT's portfolio as of December 31, 1972, 41 were expansion projects, while 58 were new ventures, 46 of them in the manufacturing sector. Seven of these 46 projects were undertaken by companies that already had operations in the same field. Of the remaining 39 new ventures, including nine joint ven- tures with foreign enterprises, 17 were undertaken by entrepreneurs with experience as traders, bankers and businessmen, and two by persons with no previous experience in business or industry. Thus, 22 or 48% of the new industrial ventures were undertaken by new entrants into the manufacturing field. Equity Investments and Guarantees 3.09 Until recently IFCT held shares in only one company (Bt. 250,000). In 1972-73, however, IFCT approved three equity investments totalling Bt. 11.7 mill. As of December 31, 1973, total guarantees amounted to Bt. 58 million for four companies. The guarantees, all extended before 1972 to existing clients of IFCT, were for various purposes such as guaranteeing an issue of debentures, guaranteeing suppliers' credits and bank overdrafts. Thereas equity investments are likely to increase considerably in the future, guarantees are expected to remain at about the present level. Foreign Exchange Risk 3.10 As a policy, IFCT does not carry the foreign exchange risk but passes it on to its sub-borrowers. This has adversely affected IFCT's lending in foreign exchange as sub-borrowers are reluctant to assume the exchange risk and prefer to borrow Baht resources which are freely convertible. In March 1974, the Ministry of Finance and IFCT agreed to enter into a foreign exchange risk agreement (shown in Annex 9), the main features of which are: (i) IFCT shall pay into a "Claim Account" in the name of the Ministry of Finance 1/4% p.a. of its outstanding foreign debt; (ii) IFCT shall set aside to a Provision for Exchange Risk 1% p.a. of its outstanding debt; (iii) if a net loss occurs owing to a realignment of currencies, the loss shall be charged: first, against the Provision for Exchange Risk (up to 75% of the balance of that Provision), and secondly, the balance if any, against the Claim Account; (iv) in the event that the loss exceeds the sum of the charges so made, the Ministry of Finance shall reimburse IFCT the amount of the excess; and (v) IFCT shall repay the Ministry of Finance this reimbursement at the rate of Bt. one million p.a., irrespective of the number of such reimbursements made to IFCT by the Ministry of Finance. The agreement would not relieve IFCT of possible costs as a result of currency realignaents, but would make it possible for IFCT to meet the costs in an orderly and 1/ Undertaken by 91 companies. - 9 - manageable way. 1/ The total expenses to IFCT under the agreement are precisely determinable and not unduly burdensome in relation to IFCT's expected earnings. The Bank has reviewed the agreement and found it acceptable. Interest Rates 3.11 IFCT's lending rate is 10-1/2% for domestic loans and 9-1/2% for foreign currency loans with the borrower assuming the foreign exchange risk. When the foreign exchange risk agreement (para 3.10) has become effective, IFCT will raise its foreign currency lending rate by 1% to 10-1/2%. IFCT's lending rate of 10-1/2% appears low compared with the recently increased prime lending rate of the commercial banks of 11-1/2%. However, commercial bank lending is based on superficial appraisals, and disclosure requirements are minimal. This places IFCT under a competitive disadvantage. Moreover, the commercial banks' minimum lending rate of 11-1/2% is not determined by the play of market forces, but is established by the Inter-Bank Agreement (see also para 25, Annex 1) and helps keep lending rates too far above deposit rates. More importantly, suppliers' credits are freely available at 7-8% interest. Because of the relative short term nature of suppliers' credits, heavy reliance by Thai entrepreneurs on suppliers' credits is not welcomed owing to its adverse effects on the balance of payments. 3.12 IFCT increasingly perceives its own role as one primarily of develop- ment rather than of profit-maximization. It is unlikely to need to raise local resources for the next few years, and in any event the currently distorted interest rate structure makes it virtually impossible to raise such funds by public borrowing. Thailand's interest rate structure was studied by the IMF in 1973 and its report and recommendations are scheduled to be discussed by the Bank of Thailand in the summer of 1974. Subsequent changes in the general interest rate structure are possible, and IFCT has assured the Bank that it will keep its lending rates under frequent review to ensure that it is appropriate on financial and economic grounds. In these circumstances, its proposed lending rate of 10-1/2% for foreign exchange and baht loans appears appropriate. Resources 3.13 IFCT's total resources (net of repayments) amounted to Bt. 985 million (US$49.3 million) at December 31, 1973; local resources made up Bt. 378 million or 38% of the total, foreign resources Bt. 607 million (US$30.4 million) or 62%. Details of IFCT's resources are shown in Annex 10. 1/ The fact that IFCT would not have to pass on the foreign exchange risk to its clients will affect its income in two ways. First, IFCT's foreign currency lending rate will be raised 1% to 10-1/2% (the net "fee" would in effect therefore be only 1/4%) and secondly, IFCT's foreign currency lending is likely to increase substantially without a corresponding in- crease in its expenses. If IFCT were to make a repayment of Bt. 1 million in 1976, when its outstanding foreign debt is projected to amount to about Bt. 1,100 million, the Bt. 1 million repayment would correspond to 0.09% of the outstanding foreign debt; this means that the total net cost to IFCT would be 0.34% (the fee of 0.25% plus 0.09%) of the outstanding foreign debt in that year. The maximum annual repayment of Bt. 1 million would have only a relatively insignificant effect on IFCT's profitability, cash flow and debt service coverage. - 10 - 3.14 Local Resources. IFCT's local resources as of December 31, 1973 were as follows (in Bt. million): Amount Percentage Share capital 150.0 39.7 Retained earnings 55.2 205.2 14.6 54.3 Government loans (net of repayments) 92.9 24.6 Debentures 80.0 21.1 378.1 100.0 The maturity of the Government loans ranges from 15 to 50 years and the interest rate from nil to 6-1/2% p.a.; the weighted average rate of interest is 3.7%. Government loans amounting to Bt. 68.9 million are subordinated to share capital. The Government has not extended any loans to IFCT since 1967. The debentures, guaranteed by the Government, were issued in 1968 at 7% p.a. with 10 years maturity. On December 31, 1973J IFCT had Bt. 149 million in local resources available for disbursement against which it had undisbursed commitments of Bt. 34 million, leaving Bt. 115 million available for commitment. 3.15 A loan agreement between the Government and IFCT has been drafted and is expected to be signed soon under which IFCT is likely to receive about Bt. 50 million from PL-480 counterpart funds. 1/ The funds will be repaid to the Government over 40 years and will be available to IFCT at a concessional rate of 2% for financing agro-business and forestry projects. Oaly 3% of IFCT's spread will be treated as income; the balance will be set aside as a provision to meet possible portfolio losses in view of the uncertainties attending projects of the types expected to be financed. 3.16 The debentures issued by IFCT in 1968 were guaranteed by the Government and taken up mostly by the Bank of Thailand. For all practical purposes, therefore, IFCT's resource mobilization has been confined to periodic increases in its equity. IFCT has been unable to raise loan funds from the public because of the interest rate structure in Thailand. As commercial banks pay 8% interest tax free on 12 months deposits and Govern- ment bonds yield 7-1/2% - 8-1/2% tax free, IFCT would have had to offer rates of interest higher than its lending rate of 10-1/2%, and accept a negative spread on the borrowed funds. As mentioned in para 3.12, the Bank of Thailand is presently, in consultation with IMF, reviewing the interest rate structure in Thailand and IFCT has assured the Bank that it will hold the appropriateness of its lending rates under frequent review. 1/ The initial amount was for a total of Bt. 300 million, Bt. 150 million in each of the years 1973 and 1974. IFCT will, however, receive only Bt. 50 million for 1973 as the commodity shipments which give rise to the counterpart funds were lower in that year than expected. The outlook for 1974 is gloomy since cotton and tobacco shipments are not moving and IFCT is unlikely to receive any counterpart funds with respect to 1974. - 11 - 3.17 Foreign Currency Resources. IFCT's foreign currency resources as of December 31, 1973 were as follows: Amount Bt. Million US$ Million Percentage KfW (net of repayments) 123 6.1 20.1 AsDB (net of repayments) 229 11.5 37.8 Special Yen loan 234 11.7 38.5 Danish Government loan 21 1.1 3.6 607 30.4 100.0 IFCT has received three loans from KfW totalling Bt. 195 million equivalent. As of December 31, 1973, two of the loans were fully committed; the third loan of Bt. 75 million equivalent (US$3.8 million), signed in August 1973, was almost entirely uncommitted. By agreement, the proceeds will be used to finance projects which will create employment, improve Thailand's balance of payments and contribute to balanced regional economic growth. Only small- and medium-scale projects will be financed out of the loan. Of the two loans from AsDB totalling Bt. 298 million equivalent, Bt. 5.6 million equivalent (US$0.3 million) was still available for commitment as of December 31, 1973; the interest rate is 6-7/8% and repayments are linked to IFCT's own collections. The Danish credit, provided to finance two specific projects, is fully commit- ted. It is interest-free to IFCT but, of the interest received by it, only 3% is allowed to be treated as income, the balance being transferred to reserves. The Special Yen loan represents part of Japanese war reparations payments to Thailand and, although it is drawn in yen, the repayments are to be made in baht to the Bank of Thailand. The interest rate on the Special Yen loan is 7% and repayments are tied to IFCT's own collections. On December 31, 1973, IFCT had Bt. 227 million equivalent (US$11.4 million) foreign resources available for disbursement against which it had undisbursed commitments of Bt. 134 million equivalent, leaving Bt. 93 million equivalent (US$4.7 million) available for commitment. 3.18 In January 1974, IFCT obtained from the Japan Ex-Im Bank a loan of i 10,000 million (about US$36 million). The credit is tied and carries interest at 5.25%. It has a maturity of 20 years. Financial Position and Profitability 3.19 IFCT's balance sheets as of December 31, 1969-73 are shown in Annex 12. Total assets increased by 92% to Bt. 769 million during the 4 year period ended December 31, 1973. The loan portfolio increased by 87% to Bt. 601 million during the same period and accounted for 78% of total assets as of December 31, 1973; foreign currency loans amounted to 62% of the loan portfolio. The equity portfolio amounted only to Bt. 350,000 on December 31, 1973. The increase in portfolio during the four-year period was financed mainly by draw-downs on the two AsDB loans and the Special Yen loan and by the 1971 and 1973 share capital increases each of Bt. 50 million. - 12 - 3.20 Quality of Portfolio. Two and a half year ago, IFCT's arrears posi- tion had become serious, and about a fifth of the portfolio had been affected by defaults. The arrears position has since been improved significantly. As of December 31, 1973, total principal and interest in arrears amounted to Bt. 12.7 million or 2.1% of total loans outstanding, compared with 4.7% and 5.7% respectively on June 30 of 1972 and 1971. Principal of loans affected by arrears (Bt. 64.4 million) as a percentage of total loan portfolio was 10.6% on December 31, 1973 compared with 22.4% on June 30, 1971. This improvement was brought about by close management attention, frequent project visits particularly to problem projects (four times or more a year), legal actions taken against some delinquent clients and the charging of higher penalty interest (up to 5-1/2% above the normal rate of interest). IFCT has also made use of rescheduling where the situation warranted it. Annex 11 gives an analysis of IFCT's artears, which are now reasonably satisfactory. 3.21 A detailed analysis of IFCT's portfolio undertaken as of December 31, 1973 showed that eighteen projects of IFCT's loan portfolio of 85 had some problems. However, except in the case of eight projects, the problems were of a temporary nature and caused no threat to the viability of the projects. The eight projects with serious problems had an outstanding balance of Bt. 20.1 million. Most of IFCT's loans are, however, adequately secured and IFCT estimates that its probable losses on these projects will not amount to more than Bt. 3.2 million. In addition, on outstanding guarantees of Bt. 57.6 million, IFCT expects to lose not more than Bt. 4.2 million. No losses are expected on the small equity portfolio of Bt. 350,000. Against these estimated losses totalling Bt. 7.4 million, IFCT has made provisions of Bt. 8.2 million. IFCT's portfolio is now sound and provisions appear adequate. 3.22 Debt/Equity Ratio. IFCT's long-term liabilities (including guaran- tees) increased by 79% to Bt. 601 million during the 4 years ended December 31. 1973. Its equity increased by 193% to Bt. 205 million during the same period. The total long-term debt/equity ratio was 2.9:1 on December 31, 1973. If subordinated Government loans were included in equity, the ratio would be 1.9:1. IFCT's policy statement was amended in July 1973 to provide for a maximum total long-term debt/equity ratio of 6.0:1. The same borrowing limit, namely six times equity is incorporated in the draft agreement for the proposed Bank loan. This limit is justified by the quality of IFCT's manage- ment and its sound portfolio. Moreover, according to IFCT's forecasts, debt service coverage will not be lower than 1.48, in 1976. The debt/equity ratio is expected to increase to 6.5 in 1977, when IFCT intends to consider increasing its share capital by Bt. 50 mill. Such increase would keep the debt/equity ratio within the recommended limit throughout the forecast period. 3.23 Reserves. IFCT's reserves (Bt. 54.8 million) and unappropriated earnings (Bt. 0.4 million) totalled Bt. 55.2 million or 8.3% of the port- folio (including outstanding guarantees) as of December 31, 1973; reserves, unappropriated earnings, and provisions for doubtful loans amounted to 9.4% of the portfolio. Reserves and retained earnings have increased by 109% since January 1, 1971, and are satisfactory. - 13 - 3.24 IFCT's shares are quoted on the Bangkok Stock Exchange, but trading is negligible and changes in shareholdings minimal; the market price of Bt. 1,015 (Bt. 1,000 par) on March 27, 1974 is therefore not necessarily indicative of the real value. Book value per share was Bt. 1,368 on December 31, 1973. 3.25 Profitability. Income statements for 1969 through 1973 are shown in Annex 13. Gross income has more than doubled over the past four years, whereas expenses increased at a slightly slower pace, resulting in a 1973 net income of Bt. 21.3 million - 130% higher than that of 1969, but 2% lower than that of 1972. The slight decrease in net income from 1972 to 1973 is due to a narrowing of the interest spread from 3.9% to 3.4%; average income from term loans decreased from 9.9% in 1972 to 9.7% in 1973, owing to the relatively higher increase in foreign currency lending (at 9-1/2%) than in local currency lending (at 10-1/2%), and the average cost of term debt increased from 6.0% to 6.3%. Provisions for doubtful loans are not made as a fixed percentage of loan portfolio; they are determined on the basis of a review of each loan. The provision for 1971 was Bt. 6.2 million and that for 1972 and 1973 nil, contributing to a substantial increase in 1972 and 1973 net income over that of 1971. Administrative expenses, while increasing in absolute terms, have remained constant as a percentage of total assets (1.5). 3.26 Net income as a percentage of average assets grew from 2.6 in 1969 to 2.9 in 1973, but, due to the 1971 and 1973 share capital increases, fell as a percentage of net worth from 13.2 to 10.4 during the same period. There has been no increase in the 9% dividend since 1970. The 9% dividend resulted in a pay-out ratio of 48.8% in 1973. 3.27 Audit. IFCT's 1973 accounts were audited and certified without qualification by the SGV-Na Thaland & Co., a firm acceptable to the Bank. The audit report was, and IFCT has agreed to continue to provide it, in the form required of its dfc clients by the Bank. Economic Impact of IFCT Operations 3.28 An attempt is made in this section to assess the economic impact of IFCT's operations. In the absence of complete data this assessment is admittedly not precise but it does give some idea of the importance of IFCT as a specialized financial institution and of how its operations look from a broader economic rather than purely financial point of view. 3.29 IFCT is the only specialized institution in Thailand providing long-term finance to the private industrial sector. Its annual lending volume is small in absolute terms. Its share in private industrial investment is about 3-4% but because IFCT finances, on an average, only about 30% of the total project cost, its influence (generally thought beneficial) on project formulation reaches some 10-15% of Thailand's investment in the manufacturing sector. Moreover, IFCT's relative importance as an institutional source of finance for the private manu- facturing sector has been increasing. IFCT's total outstanding advances in relation to commercial banks' advances to the manufacturing sector - 14 - increased from 4% in 1965 to 8% in 1968 and to 11% in 1973. 1/ It should be added that IFCT's project appraisal methods and standards are well regarded by the financial and business communities and are treated as models. The influence of IFCT's operations in this respect and in the formulation of projects may well be more far-reaching than the statistics above indicate. 3.30 22 of the 91 companies in IFCT's portfolio were established by entrepreneurs new to the manufacturing sector, and to that extent IFCT's financing has helped to broaden the entrepreneurial base in the country. Nineteen companies are joint ventures with foreign enteprises, while 39 (in total 64 percent of its projects) have technical cooperation arrangements with foreign companies and are, therefore, importing capital and/or new technical skills and know-how into Thailand. 3.31 Up to 1971 the incremental output amounting to Bt. 1,900 million of IFCT-financed projects was produced with an approximate capital outlay of At. 3,300 million. This gives a capital/output ratio of 1.7 as compared to an estimated national average for industry of about 2.0. The projects financed during 1972 and 1973 are estimated to have a capital/output ratio of about 1.5. 2/ 3.32 Since IFCT's inception in 1959, projects it has financed have created approximately 39,000 jobs, of which about 30,000 in the manufacturing sector account for about 11 percent of total incremental employment in manufacturing. The projects that were financed by IFCT during 1972 and the first half of 1973 are expected to create over 5,000 jobs at a cost of little over Bt. 100,000 (US$5,000) per job. 3.33 The impact of IFCT-financed projects on Thailand's export performance is very difficult to assess because relevant data are not available. 3/ Before 1970, in line with Government policies, IFCT financed mainly import-substituting projects. With the shift in industrial develop- ment policies since then, IFCT has increasingly supported export-oriented projects which since 1970 have numbered 21 or close to one-third of all approved projects. Six of those 21 projects produce for exports only. Most of the projects for which data are available are based on local raw materials and account for about 10 percent of exports in their respective sectors. 3.34 Promotion. During the last year, IFCT became more active in identifying projects in "new" industrial branches and under-developed areas, with a view to promoting and financing such projects. For example, during 1/ Statistics are not available on the lending volume of investment banks and finance companies; even after direct enquiries an estimate of their lending to the manufacturing sector could not be obtained. 2/ This figure is probably on the low side as it is based on the estimates contained in appraisal reports that show output figures under full capa- city operation. 3/ Many of the exporting clients have established separate sales companies for which data could not be collected. - 15 - the first nine months of 1973, a study group of IFCT's Planning ard Research Division has produced seven reports analyzing the potential for establishing projects in various industrial branches; the respective fields of these studies are prescribed by management. At least two of the studies are likely to result in IFCT-financed projects. Also during 1973, an IFCT team visited the North-East Region to survey, in cooperation with NESDB, possibilities for setting up agro-industriql projects; further study tours are to follow at regular intervals. Presedtly, IFCT is working jointly with IFC on the promotion of a large pulp project. 3.35 IFCT plans in the future to increase its promotional activities ei;pecially in respect of relatively small projects, those located outside the greater Bangkok area and in the field of agro-business. The activities include the preparation of feasibility studies of possible projects based on local raw materials of the less developed areas, arranging meetings with upcountry business communities and IFCT's senior staff, and the opening of representative offices at regional centres. 3.36 Economic Rates of Return on IFCT financed projects. Up to now IFCT has not used the ERR concept in its project evaluation process. How- ever, at the specific request of, and togetber with, the appraisal mission it did calculate financial and economic rates of return for a sample of 14 projects. 1/ The outcome of the exercise, showing the sample-range of both estimated financial and economic rates of return, is given below: Percentage Range FRR ERR 0 - 9.9 1 2 10 - 19.9 6 7 20 and more 7 5 Only two projects showed an ERR of less than 10 percent while five projects had an ERR of 20% or more. Moreover, six projects had a higher ERR than FRR. On a simple average, ERR (29 percent) was higher than FRR (23 percent). On a weighted average, ERR and FRR were 13% and 15% respectively. Excluding one very large steel project, the weighted averages were 16% and 23%. The two projects that had an ERR of below 10 percent, namely 2 percent and 3 percent, are both engaged in the production of plastic materials which are heavily protected. On the other hand, four of the five projects that showed ERR of above 20 percent are using local raw materials (wood, bamboo grass, rubber) that account for a high proportion in total production costs. All these results should be taken as indicating orders of magnitude only, because of the many approximations that were necessary. By the same 1/ The sample represents IFCT's loan operations reasonably well, as 4 projects are from each of the consumer goods and capital goods industries groups and 6 from the intermediate goods sector. However, within each group the sampling was guided more by data availability than by scienti- fic method. Thus the sample is biased towards larger, better-run enter- prises. It does not include any of IFCT's 21 problem projects. Five projects had not started operations; for these projects estimates given in the appraisal were used. - 16 - token, some of the ERR values are probably understated because adjustment could not be made for construction costs, transport, handling charges, etc. 3.37 As already stated, IFCT appraisals do not yet use the ERR cal- culation. The fairly good results that the sample study showed do not, therefore, establish a causal relationship. It should be noted however that four of the five more successful projects (as measured by ERR) in the sample were approved in 1972 and 1973. IV. PROSPECTS General Outlook 4.01 The outlook for the Thai economy is generally good, although inflation and the oil-related problems introduce an element of uncertainty. The external trade position has, however, improved and looks favorable for the next couple of years. Domestic demand hag improved with a consequent increase in manufacturing production and private investment. Uncertainties prevailing are apparently causing some hesitation on the part of foreign investors, while many local entrepreneurs are more confident and seem determined to go ahead with their investment plans. The emphasis of the Third Plan is on agriculture, but private manufacturing continues to be important. Growth of manufacturing in the past was led by import-substituting industries, but the emphasis in the Third Plan is (correctly) on export- oriented industries. To promote economic grwtth in the rural areas and to reduce income disparities, Government policieg also emphasize the development of agro-based and labor-intensive industries located in the less-developed areas. 4.02 The expected high level of investment (if realized) in the private manufacturing sector during the remaining period of the Third Plan will naturally mean an increase in the demand for term finance. The sources of finance for industrial enterprises in Thailand depend upon the size and the nature of projects. Large industrial enterprises have relatively easy access to commercial bank credit and foreign suppliers' credits. Smaller enterprises rely mostly on internal cash generation and the unorganized money market. Smaller projects, those to be located in outlying regions, and those sponsored by relatively unknown entrepreneurs, find it difficult to secure all the institutional finance needed. IFCT Strategy 4.03 For the last ten years, IFCT has operated in a financial environ- ment dominated by the commercial banks. It has not been able to compete effectively with commercial banks for the easy and secure business of financing projects sponsored by well-established entrepreneurs in and around the Bangkok area. The reasons are principally two: first, IFCT did not have the influence and contacts of the commercial banks; secondly, the well-established entrepreneurs could get the money faster from the commercial banks and with less disclosure of information as long as they could provide adequate security. Also, IFCT considered that too much emphasis on financing such projects would be contrary to its stated - 17 - development orientation. On the other hand, IFCT has not been very aggressive in seeking new business. 4.04 For the future, IFCT plans to follow a strategy which would involve (a) financing smaller projects in the Greater Bangkok area unlikely to interest the commercial banks, (b) financing a few large projects that are complex, include promotional elements and require the assembly of a group of sponsors (possibly involving foreign financial and technical collaboration), (c) financing (possibly first promoting) projects which are located in less developed regions, particularly agro-business projects, (d) increased equity investment, and (e) to the extent possible, competing mure aggressively with the commercial banks. 4.05 The above mentioned strategy appears in general to be sound. Implementing it successfully will not be easy. IFCT is not under-estimating the difficulties, and has already begun to equip itself for the task. The operations mentioned in (a), (c) and (d) will cause IFCT's expenses to increase, but its resource-mix is such (see paras 3.15 and 3.17) that the overall cost of resources will be relatively low, enabling it to meet higher expenses and still set aside provisions and reserves appropriate to the risks undertaken. There has also been significant progress in strength- ening management and staff, as already noted. Moreover, IFCT hopes to benefit by a close working relationship with the Bank during the life of the proposed loan. Business Forecasts 4.06 IFCT's operational forecasts for the period 1974-1978 are given in Annex 14. Commitments are summarized below (in Bt. million): Local Foreign Grand Loans Equity Total Loans Total 1972 (actual) 68 - 68 136 204 1973 (actual) 23 - 23 128 151 1974 87 47 134 388 522 1975 80 30 110 310 420 1976 90 40 130 335 465 1977 95 50 145 365 510 1978 105 60 165 390 555 The sudden jump in 1974 commitments, and subsequent decline, need explana- tion. First, approvals amounting to Bt. 161 million had not become commit- ments before the end of 1973 but should do so in 1974, and an additional Bt. 470 million are expected to be approved during 1974 with most reaching the commitment stage in the same year. Secondly, IFCT has been working on a few large projects for some time and some are expected to reach commitment in 1974. Thirdly, the Government has approved a significant increase in hotel capacity, and IFCT expects to commit about Bt. 55 million on hotel - 18- projects 1/ in 1974. In subsequent years, IFCT's commitments are expected to fluctuate less. 4.07 On the basis of estimated project costs expected to be committed in 1974, IFCT estimates that the domestic:foreign currency mix in its loan commitments will be 25:75. In subsequent years, IFCT expects the domestic currency commitments gradually to increase and to reach 30:70 by 1978 as IFCT becomes more involved in agro-business and projects in less developed regions. This appears reasonable. Equity investments will all be in domestic currency. Based on IFCT's pipeline of projects, which amounted to about Bt. 600 million at the end of March 1974, the overall level of estimated commitments shown in para 4.06 above appears realistic and should be attainable. Resource Needs 4.03 Foreign Currency. IFCT's foreign currency resources available for commitment amounted to US$4.7 million (Bt. 93 million) as of December 31, 1973, but have since been augmented by the tied Japan Ex-Im Bank loan of about US$36 million (para 3.18), bringing the total uncommitted foreign exchange resources to US$40.7 million. IFCT expects to commit US$9.8 million in the first half of 1974 reducing uncommitted resources to US$30.9 million. IFCT's commitments during the period mid-1974 to mid-19762/ are expected to total US$33.5 million. On the basis of its pipeline of projects, an analysis of sources of procurement for its own projects and for Thailand's capital goods imports for the manufacturing sector, IFCT estimates that, on an average, about 40% of the commitments, or about US$14 million, would involve procurement from Japan and, therefore, could be financed from the tied Japanese loans. This leaves about US$19 million to be committed for procurement from sources other than Japan. About US$7 million is likely to be for smaller projects to be financed out oftthe existing KfW loan and another KfW loan of about US$7 million which IFCT expects to obtain in the course of the 2-1/2 year period, both of which will be restricted to financing projects not involving more than US$400,000 each. IFCT will, therefore, need additional untied foreign currency resources of about US$12 million. A Bank loan of US$12 million would meet IFCT's needs for these additional untied resources during the period mid-1974 to mid-1976. 4.09 Local Currency. IFCT's local currency resources available for commitment amounted to Bt. 115 million as of December 31, 1973, but are likely to be augmented by Bt. 50 million from PL 480 counterpart funds (para 3.15), bringing total uncommitted local currency resources to Bt. 165 million. These resources will be augmented through loan collections, net of repayments, of Bt. 149 million and internal cash generation of about Bt. 135 million during 1974-76, making Bt. 449 million available for commitment during the period. Although the PL 480 funds of Bt. 50 million can be used only for agro-business projects, these and other baht resources are sufficient to meet IFCT's projected loan commitments, Bt. 257 million, and equity commit- ments, Bt. 117 million, in total Bt. 374 million through 1976. 1/ This estimate is based on IFCT's pipeline of projects at the end of March 1974. 2/ 1976 commitments are assumed to be divided equally in the first and second half of the year. - 19 - Financial Proj,ections 4.10 Projected balance sheets through 1978 are given in Annex 15. IFCT's assets are projected to increase rapidly by an average of 31% annually from Bt. 769 million in 1973 to Bt. 2,341 million in 1978, primarily because of expanded lending. The loan portfolio, after deduction of provisions, is expected to nore than double from Bt. 601 million in 1973 to Bt. 1,837 million in 1978 and the equity portfolio to increase from virtually nil to Bt. 223 million. Reserves and provisions as a percentage of the total portfolio are expected to decrease from 9.4% in 1973 to 7.7% in 1976, but then to increase to 8.3% in 1978. The total debt-equity ratio will increase from 2.9:1 on December 31, 1973 to 6.5:1 on December 31, 1977. As mentioned in para 3.22, at such time IFCT intends to consider increasing its share capital by Bt. 50 million. Such an increase would keep the debt/equity ratio within the recommended limit of 6:1 throughout the forecast period. 4.11 Projected income statements through 1978 are given in Annex 16. Net income 1/ is expected to increase from Bt. 21 million in 1973 to Bt. 39 million in 1978 or by about 17% annually, a lower growth rate than that of the last few years (para 3.25) and also considerably lower than the expected rate of increase of business. The lower growth rate arises partly because the return on equity investments is estimated to be low in the initial years, and partly because IFCT's income estimates are somewhat conservative. The average income from term loans is forecast to increase from 9.7% in 1973 to 9.9% in 1978. The average cost of term debt is forecast to decrease from 6.3% in 1973 to 5.5% in 1978 so that the interest spread will increase from 3.4% in 1973 to 4.4% in 1978. This higher interest spread is, however, offset by the 1-1/4% "fee" on outstanding foreign debt relating to the foreign exchange risk agreement (para 3.10). The concessionary funds at the disposal of IFCT will therefore not result in a relatively higher net income. Net income as a percentage of average assets is forecast to decrease from 2.9% in 1973 to 1.8% in 1978 and as a percentage of average net wcrth from 12.1% in 1973 to 11.3% in 1976, but then to increase to 13.9% in 1978. The dividend which was 9% in 1973, is projected to be 9.5% in 1974 and 10% from 1975 onwards. The dividend pay-out ratio will be at its highest, 57%, in 1975, but will decrease thereafter to 39% in 1978. Administrative expenses are forecast to increase by 119% from 1973 to 1978, but to decrease as a percentage of total average assets from 1.5% in 1973 to 1.1% in 1978. 4.12 Projected cash flow statements through 1977 are given in Annex 17. These and the projected income statements indicate that IFCT will have a satisfactory debt service coverage not lower than 1.48 throughout the forecast period. Assuming IFCT's overall capital structure remains sound, 1/ 4.5% of the interest to KfW on its third and fourth loans is to be set aside to a special fund and is not included in net income. The net interest under the Danish and USAID loans, not to be distributed as dividend, 6-1/2% and 5-1/2% respectively, is included in net income from which the corresponding amounts are allocated to a special reserve fund. - 20 - the debt service cover should remain satisfactory throughout the period of the proposed Bank loan. A schedule of estimated disbursements of the pro- posed Bank loan is shown in Annex 18. V. CONCLUSIONS AND RECOMMENDATIONS 5.01 IFCT, established in 1959, played a modest role in the sixties, but during the last three years it has increased its volume of business consider- ably, primarily because of better management of the company. More recently, management has been further strengthened and management and staff is now generally competent. IFCT should be able to carry out its intentions of further expanding its operations and increasing its promotional activities, especially in respect of projects located outside the greater Bangkok area and in the field of agro-business. 5.02 IFCT's organizational structure is suitable to its needs. Its organizational procedures are generally satisfactory, although some upgrading of marketing and economic appraisals is needed. Loan operations are well diversified in various industrial branches, the majority of its loans being for small and medium-sized enterprises. The economic rate of return shown by a sample of projects is satisfactory. 5.03 IFCT's overall financial position is sound. Its portfolio is satisfactory and provisions appear adequate. Its financial structure, profitability and debt service ability are expected to remain satisfactory. 5.04 IFCT is creditworthy, and is suitable for a second Bank loan. IFCT will need about US$33 million for the period mid-1974 to mid-T976 for financing imports. US$14 million is expected to involve procurement from Japan and, therefore, could be financed from the tied Japanese loans. About US$7 million is likely to be financed out of an existing and a prospective KfW loan. A Bank loan of US$12 million would fill the remaining gap. 5.05 For the second Bank loan, a free limit of US$500,000 with an aggregate limit of 25% of the loan is recommended. This will ensure that the Bank receives for prior approval about three-quarters, by amount, of the proposed loan. 5.06 IFCT has requested a debt/equity ratio of 6:1 (making no distinction between conventional loans and subordinated loans). For the reasons given in paragraph 3.22, a contractual limit of 6:1 is appropriate and is recommended. 5.07 A Bank loan to IFCT of US$12 million is recomended. The proposed loan should be on the terms and conditions, including the standard commitment charge, usual for development finance companies. ANNEX 1 Page 1 INDUSTRIAL FINANCE CORPORATION OF THAILAND Environment and Industrial Finance Overall Economic Development 1. For a detailed review of the economic situation, reference is invited to the latest Economic Report on Thailand, 82a-TH, March 2, 1973. 2. Gross domestic product (GDP) is estimated to have grown in real terms by about 9% in 1973, but only by 3% in 1972 compared with an average growth rate of 8% during the sixties and about 6% during 1970-71. The main reasons for the slowdown after 1969 were lower export prices for major commodities in 1970-71, a decline in the growth of investment in 1971-72 and a drought in 1972, which caused agricultural production to decline. Private investment, after a decline of 3.5% in 1971, increased slightly in 1972, whereas public investment declined substantially so that total fixed itnvest- ment in current prices dropped by about 11% in 1972. 3. Factors that caused this economic slowdown have since reversed. For example, the 1973 winter harvest was good and world prices for rice, sugar, maize, rubber and tin have risen. Thus, starting in 1971, Thailand's foreign trade situation improved and the overall balance of payments posi- tion showed a surplus for 1972 and 1973 compared with deficits for the three previous years. Also, total fixed investment increased by 5% in real terms in 1973. Private fixed investment, which accounted for about 70% of gross investment in 1972, increased by 11% in real terms in 1973. 4. The energy crisis has in regard to Thailand been a problem of prices rather than of short supply. An adverse balance of payments effect is, however, not expected since the prices of a number of Thailand's major export commodities have increased to the extent that improved export earnings for the next two years or so are likely to offset the higher oil bill. The rate of inflation has increased. Whereas the consumer price index rose by a yearly average of about 2% during 1967-71, it increased by 4% in 1972 and 12% in 1973. The GNP deflator rose by 7% in 1972 and nearly 10% in 1973. The Industrial Sector 5. The growth rate of manufacturing production has been fairly steady for the last few years and has averaged about 10% during the period 1967-73, increasing its share in GDP at current factor cost from 11.6% in 1960 to 14.2% in 1972. Manufacturing is now the largest sector after agricul- ture measured by contribution to real GDP. 6. The industrial sector is characterized by a large number of consumer goods, mainly food processing, industries. According to a 1968 industrial census, consumer goods enterprises numbered 31,000 (or 69%) ANNEX 1 Page 2 out of 45,000 registered manufacturing enterprises; intermediate goods enterprises numbered 5,000 (or 11%) and capital goods enterprises 7,000 (or 16%). By 1973 the number of registered firms had increased to 63,000. In terms of value added, consumer goods industries continue to be the most important industrial group, although their share of total value added in manufacturing industry decreased fron 58.3% in 1968 to 56.0% in 1970; intermediate goods industries increased their share slightly from 26.7% to 27.0% and capital goods industries from 6.5% to 7.7%. This trend seems to have continued during the period 1971-73. 7. The large majority of enterprises are small and family-owned. According to the 1968 industrial census, 99% df total registered units employed fewer than 100 persons each, and 90% of the firms registered during the period 1967-71 (11,500) had capital holdings of less than one million baht. This small size of firms has often prevented the introduction of modern management techniques and made it difficult for them to compete with imports, whereas the close family ownershiip has been detrimental to merger of firms into larger units. The en':ry into the industrial sector of a new generation of Thais, many educated abroad, and Government incentives may change the pattern of ownership gradually, but it is likely to be a slow process. 8. Employment figures for 1972 suggest that manufacturing industries employed about one million persons or 5.7% of the estimated labor force of 17.5 million. There is a ready supply of cheap labor in Thailand, but a shortage of semi-skilled and especially of skilled labor. Some open unemployment in Bangkok of about 100,000 or fewer developed during the economic slowdown in 1971, but the situation has since improved. There is no widespread industrial unemployment. 9. Most industries, especially the larger, modern ones, are located in and around Bangkok. It is estimated that 75% of industrial output origin- ates in Bangkok and the Central Region. Industries in the rural areas are mainly primary processing industries such as rice milling, sugar and sawmills. One common problem for many industries has been underutilization of capacity, for some due to irregular supply of local raw materials and for others overcapacity in relation to domestic demand. More recently, however, domestic demand has picked up and some industries have been successful in turning to exports. 10. Thailand has few quantitative restrictions on imports, whereas import duty is imposed on most imported products. In 1973, duties on imports for certain categories, based on the receipts as a percentage of total imports for the same categories, were on an average basis 25% for consumer goods, 18% for intermediate products and raw materials and 13% for capital goods. These figures, as averages, are indicative only; nominal import duties for some products range between 40% and 60%. However, there are not sufficient data available to undertake a reasonably comprehensive assessment of the impact of effective protection, although the level of protection does not appear to have ANNEX 1 Page 3 led to gross distortions in prices and consequently to inefficient use of resources in the manufacturing sector. For the Government to assess and review existing protection and to develop comprehensive policies for the future, necessary data will have to be collected. The Government has agreed to collect the necessary data and, with the Bank's assistance, have it reviewed in time for the visit of a Bank industrial mission planned for the fall of 1974. 11. Increase in world demand and prices, and domestic price stability before 1973 have made some industries competitive on world markets and stimulated industrial exports. Thus, industrial exports increased from about U3$40 million in 1969 to about US$290 million in 1973 (about 19% of total commodity exports in 1973). Industries which have been successful in turning to exports include cement, steel and other construction materials, clothing and cotton fabrics. Some industries based on local raw materials such as canned food have also been able to increase exports. 12. Higher domestic demand and better export opportunities for certain industries, causing higher capacity utilization in most industrial branches, have stimulated private investment. One indication of the future investment level is the applications which have been granted promotional privileges by the Board of Investment (BOI). In 1973 these numbered 115 with projected investment of Bt. 7,765 million compared with 70 with projected investment of Bt. 4,079 million in 1972. Figures from the first two months of 1974 suggest that investment interest may be lower in 1974 than in 1973, but higher than in 1972. Government Policies 13. The main objectives of the third Five-Year Plan are to promote economic and social development, while maintaining price and external stability. The economic growth target for the Plan period is 7%. Private investment is projected to grow by an average annual rate of 7.3% and to contribute 63% of total investment. The Plan projects an average 8% annual growth rate in value added for the manufacturing sector. Preliminary estimates indicate that the growth rates of value added in 1972 and 1973 exceeded the target. The shift towards non-traditional industries is expected to continue so that, during the Plan period, value added in consumer goods industries is projected to increase by only 26%, while that in intermediate goods and capital goods industries is projected to increase by 44% and 61% respectively. 14. To encourage private industrial investment, the Government provides a number of incentives through the issuance of promotion certificates by BOI. An amendment to the Promotion of Industrial Investment Act in October 1972 has given BOI additional powers to grant incentives for projects that would create employment, use domestic raw materials, be export-oriented, and be located in less-developed areas. Also, in order to broaden the ownership of industries, promoted enter- prises now have to be organized in the form of a limited company or cooperative. The Government's attitude towards foreign investment con- tinues to be liberal, but has become more selective in regard to the types of industry encouraged and increasingly insistent on Thai majority ownership. ANNEX 1 Page 4 15. A promotion certificate may provide exemption from import duties and business taxes on imported capital goods and from income tax for 3 to 8 years. New enterprises, oubject to justification of needs, my be given protection in the form of an import ban, increased import duties and/or imposition of a surcharge (for a period of no longer than one year at a time) on foreign competitive products. In order to encourage exports, BOI may provide exemption from (i) export duties and business taxes on products exported, (ii) import duties and business taxes on raw and other materials used for the production of export goods, and (iii) business taxes for the supplier or producer of domestic raw materials. 16. To reduce regional income disparities and ease urban congestion in the Bangkok area, BOI may grant further benefits to industries located in designated areas outside the Bangkok provincial region. Potential industries have been identified for the less-,developed areas and in order to promote the development of the Northeast region the Government is considering setting up a special development zorporation; a body (with IFCT representation) is presently considering the form and objectives of such a corporation. The most promising possibilities in the Northeast region relate to increased agriculture processing and the establishment of consumer goods industries to supply the region's 13 million people. Industrial development of the less-developed regions will however depend to a large extent on how incentives are Used, and the implementation of the Government's plans to expand and improve infrastructure and to create industrial estates. An industrial estates authority was established in late 1972 and feasibility studies for possible locations of such estates are being undertaken. 17. Government incentives as amended in 1972 (para 14) have undoubtedly encouraged increased investment, but it is difficult at this tiae to measure their impact, as the investment climate at the same time improved for other reasons. It is also too early to determine whether incentives and other Government efforts particularly aimed at increasing manufacturing's con- tribution to regional development and employment generation are effective. A Bank industrial sector mission is scheduled to look into industrial policies and incentives in the second half of 1974. Industrial Finance 18. Commercial Banks. Commercial banks account for about 75% of assets of financial institutions in Thailand and are the largest insti- tutional source of industrial finance. Their main supply of funds are deposits which increased by 49% to Bt. 58 billion over the two-year period ended December 31, 1973. Time deposits accounted for 70% of total deposits. The banks lend in local currency and the main forms of lending are loans and overdrafts (Bt. 33 billion), most of which are on a short-term basis. Overdrafts are, however, normally renewed each year if the relationship has been satisfactory to the bank and therefore often become in effect medium- or long-term credit. Outstanding loans and overdrafts to the manufacturing sector increased by Bt. 0.9 billion or 20% to Bt. 5.2 billion from December 1971 to September 30, 1973, and accounted for 17% of total outstanding loans and overdrafts. ANNEX 1 Page 5 19. The commercial banks have a comfortable 5-7% interest margin between their borrowing and lending rates and are assured of good profits without seeking to reduce excess liquidity by more aggressive lending to, for example, small enterprises. Their lending policies are not venturesome. Moreover, their appraisals are superficial and disclosure requirements minimal as their lending is based on collateral rather than on the merits of projects. 20. Finance Companies and Investment Banks. SeveraL finance companies and investment banks, some of them joint ventures between local and foreign banks, have been established in the last few years. The business activities of finance companies have expanded rapidly and their assets are estimated at about Bt. 5 billion at the end of 1973. Legislation, giving the Bank of Thailand powers to license and regulate the activities of finace companies, was passed in 1973; about 150 finance companies have applied for licenses. Regulations prescribing liquidity ratios and maximum rates of interest are yet to be issued. Most of the companies engage only in short-term money market operations and in such activities as installment credit and accounts receivable financing. A few investment banks have, however, underwritten several bond and share issues for which they are trying to create a secondary market. A few of them also extend term loans, although still on a limited scale. At least two of the biggest investment banks have reasonable appraisal standards, but their activities including underwriting business have so far been limited to large enterprises. 21. Suppliers' Credits. Suppliers' credits are often preferred over other financing due to their seemingly attrsctive terms in the form of low rates of interest, and they provide some competition to the banking system. Their importance has, however, decreased during 1971-73. The inflow of such credits to the private sector amounted to US$150 million (Bt. 3,000 million) in 1970, but decreased to US$67 million (Bt. 1,300 million) in 1973; about 50% of the latter amount (Bt. 780 million) was for imports of machinery and parts, the remaining amount being mainly for cars, buses, etc. 22. SIFO. The Small Industries Finance Office (SIFO) of the Department of Industrial Promotion, Ministry of Finance, extends long- and medium-term loans of less than Bt. 1 million (US$50,000) to industries in the private sector. It lends in local currency and receives its funds from the Government through annual budget allocations and from the Krung Thai Bank, a Government commercial bank, in the proportion of 1 to 3. Its lending, which is undertaken in collaboration with the Krung Thai Bank, has been modest, and loans outstanding amounted to Bt. 75.3 million at the end of 1971. Loans approved in 1973 amounted to about Bt. 16 million (US$0.8 million). 23. IFCT. IFCT is the only institution in Thailand which specializes in extending medium- and long-term loans to private industrial enterprises. The minimum size of IFCT's loans is Bt. 1 million; since this is SIFO's loan ceiling, IFCT refers loan applicants to SIFO if the size of the required loan is less than Bt. 1 million, and SIFO reciprocates. In the sixties, ANNEX 1 Page 6 IFCT operated on a modest scale, but during the past three years it has been able substantially to increase its volume of business. Outstanding loan portfolio amounted to Bt. 601 million on December 31, 1973 and approvals in 1972 and 1973 to Bt. 177 million and Bt. 270 milllion- (para 3.01). The Government attaches particular importance to the role, that, for practical purposes, only IFCT is prepared to play in providing finance to projects in less-developed areas. From a small base, IFCT has increased its activities over the past three years and plans, in future, to be more acvtive in financiag small agro-based projects outside the Bangkok area (para 4.04). 24. The Capital Market. Thailand does not have a well-developed stock or bond market. The Bangkok Stock Exchange founded in 1962 has been relatively inactive and virtually no trading takes place on a dayw- to-day basis. There are several reasons: (i) very few good companies are listed, and many of them are closely held-by families; (ii) deposits with commercial banks offer very attractive (-ax-free) returns; and (iii) life insurance business and other forms of contractual savings are quite limited in Thailand, so that there are no significatit institutional invest- ments. In 1969, the Bank of Thailand (BOT) commissioned a study of the stock market. The report recommended the establishment of a new stock exchange along with several reforms to provide ineentives for private companies to go public. The report was well received and a committee 1/ was formed in September 1970 to lay the groundwork for the establishment of a securities exchange. Legislation for the new exchange has been approved by the Cabinet, but the incentives reform, needed to conduce to the successful working of the exchange, would require changes in the revenue code; these changes have not yet been approved. Under the cir- cumstances, it is uncertain whether the new exchange will start functioning until late summer 1974. Interest Rates 25. The maximum rates of interest of commercial banks, on deposits 8% and on loans 15%, are determined by the Bank of Thailand (BOT). The minlmum lending rate of 11-1/2% (increased from 10-1/2% in January 1974) is prescribed by the commercial banks which act as a cartel through the Inter-Bank Agreement of the Thai Bankers Association; this minitum lending rate has resulted in large margins for the commercial banks. / Government bonds yield 7-1/2% to 8-1/2%. Interest income from commercial bank deposits, Government 7-1/2% savings bonds and 8-1/2% loan bonds are tax exempt and therefore at a strong competitive advantage over other types of investment. Investment banks and finance companies are only marginally involved in financing industrial investment. Their interest rates are not regulated, 1/ This committee was chaired by the former Managing Director, the present Chairman, of IFCT. 2/ The average interest rate on deposits was 5.4% in 1971 and the spread between the average interest rate on loans and that on deposits was about 6%; this spread is believed to have remained unchanged. ANNEX 1 Page 7 but of course adapted to those of the commercial banks. They raise funds through the issuance of promissory notes: 12 months notes carry 9% interest. Their lending rates vary from 11% to 24% per annum. The coupon rate on bond issues by large, well-known enterprises, fully guaranteed by a commercial bank, runs at about 11% to 12%. The lending rate in the unorganized market varies from 15% to 60% per annum. Export bills and bills arising from the purchase of agricultural products, which can be rediscounted at BOT, are charged 7%. The terms of suppliers' credits during the last year or so have been about 7 to 8% interest and an amortization period of 2 to 5 years with a short or no grace period. Suppliers' credits are likely to gain in importance during 1974 partly due to tighter liquidity and higher lending rates of the commercial banks. SIFO's lending rate is 9%. IFCT's lending rate of 10-1/2% is discussed in paras 3.11 and 3.12 of the appraisal report. 26. The interest rate structure in Thailand is distorted primarily for two reasons: one, commercial bank deposits and Government bonds are tax-free; and two, the minimum lending rate of commercial banks is prescribed by the Inter-Bank Agreement and not determined by the play of market forces. BOT is presently reviewing the interest rate structure in Thailand on the basis of a study conducted by IMF in 1973. This study argues that the prescribed minimum lending rate should be abolished, that there is a good case for abolition of tax exemption on bank deposits and Government bonds, and that market forces should be allowed to play a greater role in influencing interest rates. BOT has established a committee to evaluate the IMF study. The committee is soon to finish its evaluation, and discussions with IMF are scheduled for the summer of 1974. There is, therefore, hope that corrective action will be taken in the near future. The GDP deflator in Thailand rose nearly 10% in 1973. A recent Bank mission to Thailand expects the deflator to increase by about 10% in 1974, but thereafter to increase at a substantial lower rate. There is every reason to believe that the inflationary trends will be taken into account by the Bank of Thailand in its review of the interest rate structure. ANNEX 2 Page 1 of 3 IDU8TRIAL FINANCE CORPOWATIN OF THAILAND Statement of 2oprating Policies (Adopted by tho BoArd of Directors on November 15, 1962 and amended on Daeember 23; 1963, February 7, 1966, May 1, 1967 and July 4, 1973) 1. IFCT Is an inveatment institution designed to assist in the expan- .ion of industry in Thailand. To this end, it will pursue an aggressive policy to promote, finance and otherwise assist private industry. 2. TFOT will invest in enterprises which are expected to make a con- tribution to the eoonomio development of Thailand. 3. It will make its investment decisions only on the basis of sound investment criteria And standards. 4. Subjeot to suach oriteria, it will select projects on as broad a fographical banis an poosible. 5. TFCT Articles empower it to provide finance in any form it considers appropriate to its alients and in its own interest. IFCT will, as appropriate, make use of the entire range of forms of investment. It will give particular attention to its olients' needs for equity financing and will provide such S9uity to the extent conaistent with mound finiancial praotice. 6. It will not incur Any debt in excess of six times its equity, (equity is defined as paid-in ahare capital plus reaerves plus retained earnings) deter- mined in accordanoe with sound aconunting practices. Debt in foreign currency will be valued in Baht based on its par value wit4,the borrowed foreign currencies on the date of conclusion of the loan agreement. AW 7, It will diveraify its financing (except for temporary investment of liquid funds in ahort-term securities) among different types of industries and different types of financing. A. It will not normally commit to any single enterprise (in what- ever form) an amount greater than 25% of its equity as defined in paragraph 6. b. Tt will not commit to any single enterprise in the form of equity more than 10% of its equity as defined in paragraph 6. Q. The total of its equity investments will not exceed its equity. c. It will not normally make a loan of less than Baht 1,000,000. I/ IPOT has agreed to change the second sentence of para. 6 to read as follows: "Debt in foreign ourrency will be valued in Baht using the par value, set at the time each valuation is made,with the borrowed foreign currencies", or similar wording. This change will be effected at IFOT's Board meeting in April or May 1974. Annex 2 Page 2 of3 8. It will not seek to take a controlling interest in an enterprise or any other interest which would give it primary responsibility for management of an enterprise; and it will not take up more than 25% of the shares of any single enterprise. Notwithstanding the foregoing limitation, in any case of jeopardy, it may take such action as it thinks fit to protect its investment. 9. It will conduct its operations in such manner as to assist in the growth of a capital market in Thailand and to improve facilities for marketing shares and securities, and will revolve its own portfolio uhenever it can do so on satisfactory terms. In selling an investment, it will pay due regard not only to its own interests, but also to the interests of other participants in such investment, and to the interests of the others who have directly invested in the enterprise in which it has invested. 10. It will finance undertakings which are soundly managed and which appear, on careful economic, financial and engineering investigation, to be economically viable; and it will carefully watch the operation of the enterprises it finances and it will promptly make available to them constructive and remedial advice wherever requisite. 11. To build and strengthen its own management and staff as well as to assist clients in the formulation and execution of their projects, it will rapidly build an effective organization and develop an adequate staff, including financial and economic analysis, engineering, accountancy and legal services. 12. In accordance with normal business practice, IFCT will endeavour to obtain adequate security for the loans it provides. However, its decisions to invest will be based on its judgement regarding the prospective profitability of its clients' enterprises. 13. It will levy charges for its loan financing and services which, together with earnings on investment, will allow the accumulation of resources and the payment to its shareholders, in due course, of a satisfactory return on their investment. It will build and maintain reserves consistent with sound financial practice; these will include reserves for bad debts and investments and, in addition, legal reserve to strengthen its equity. To this end, it will set aside at least 30% of its annual profits consisting of (a) 25% as reserves for bad debts and invest- ments until such reserves have been built up to 20% of its loan and investment portfolio and (b) 5% as legal reserve until it has been built up to 10% of the paid-in capital. 14. IFCT will not carry the foreign exchange risk on external borrowings, which it must repay in foreign exchange. It will pass that Annex 2 Page 3 of 3 risk to its clients or find other suitable means to cover it. y 15. The Board of Directors will use its best efforts to prevent any one person or company, or group of affiliated persons or companies from gaining effective control of IFCT, ±/ IFCT has agreed to change the wording of para. 14 as follows: "tThe foreign exchange risk on IFCT's external borrowings, which IFCT must repay in foreign exchange, will be covered: a. For Government guaranteed and qualifying non-Government guaranteed loans, under the foreign exchange risk agreement between IFCT and the Ministry of Finance dated , or b. In case the foreign exchange risk is not covered by the said agreement, IFCT will pass that risk to its clients or will find other suitable means to cover itt". (The foreign exchange risk agreement is expected to be signed in April 1974.) This change will be effected at IFCT's Board meeting in April or May 1974. Regional Project Department Asia Regional Office April 9, 1974 ANNEX 3 Page 1 of 3 INDUSTRIAL FINANCE CORPORATION OF THAILAND List of Shareholders as of December 31. 1973 Percentage of Foreign Shareholders No. of Shares Total International Finance Corporation 8.000 5.3 (TSA Manufacturers Hanover International Fin. Corp. 5,499 Bank of America 3,127 Chase Manhattan Bank 2,691 Chase Manhattan Overseas Banking Corp. 2 ,040 Wells Fargo Bank International Corp. 1,833 United California Bank International 1,833 17,023 11.3 Japan The Mitsui Bank Ltd. 4,907 The Bank of Tokyo 4h,906 The Fuji Bank Ltd. 2.000 11,813 7.9 United Kingdom 'The Hongkong & Shanghai Banking Corp. 4,702 The Chartered Bank 3,916 8,618 5.7 Germany Deutsche Bank A.G. 4,398 Deutsche Gesellschaft f. Wirtschaftliche Zusammenarbeit 3,500 r,ommerzbank Aktiengesellschaft 3 000 _ IU,SYO 7.3 Malaysia United Malayan Banking Corp. Ltd. 4.509 3.0 France Bsmque de 'lindochine 2,671 Banque Francaise du Commerce Exterieur 1,000 3,671 2.5 Regional Project Department Asia Regional Office April 8, 1974. ANNEX, 3 Page 2 of 3 Percentage of Foreign Shareholders "continued) No. of Shares Total India Indian Overseas Bank 1.¢00 Taiwan The International Comm. Bank of China 1,291 China Underwriters Life & General Ins. C.Ltd. -1,000 2,291 1.5 Other small foreign shareholders 2,952 2.0 Total Foreign 71.275 47.5 Local. Shareholders Krung Thai Bank Ltd. 24,592 Bangkok Bank Ltd. 13,031 The Bangkok Bank of Commerce Ltd. 3,768 The Bank of Asia for Industry and Commerce Ltd. 2,550 The Asia Trust Bank Ltd. 2,500 The Bank of Ayudhya Ltd. 2,024 The South-East Insurance Co. Ltd. 2,000 Bureau of Crown Property 2,000 The Bangkok Insurance Co. Ltd. 1,500 The Thai Farmers Bank Ltd. 1,500 The Thai Danu Bank Ltd. 1,488 Bangkok Metropolitan Bank Ltd. 1,488 The Siam City'Bank Ltd. 1,436 Mr. Chow Chowkwanym 1,010 Mr. Jootee Boonsong 1,000 The Union Bank of Bangkok Ltd. 1,000 The 'Union Insurance Co. Ltd. 1,000 '-5angkok Nomura International Security Co. 1,000 -3hareholders holding less than 1,000 shares each 13,838 Total Domestic 78,725 52.5 Grand Total 1.50,0Q0 100.0 Regional Project Department Asia Reptonal Office April 8, 1974 ANNEX 3 Page 3 of 3 Distribution of Shareholders No. of Shares Percentage of Total Banks 309,68L ILI Domestic 58,028 Foreign, with office in Thailand 38,592 96,620 64.4 Foreign, without office in Thailand 13,064 8.7 Insurance Companies 8.650 5.8 Domestic 7,150 Foreign, with office in Thailand 1,500 Investment Companies 7,5o4 5 ° Domestic 1,525 Foreign, with office in Thailand 480 2,005 1.3 Foreign, without office in Thailand 5,499 3.7 Other Companies 9,477 6.3 Domestic 5,602 Foreign, with office in Thailand _ 71 5,873 3.9 Foreign, without office in Thailand 3,604 2.4 IFC Individuals 6,685 4 Domestic 6,420 Foreign 265 Total 150,000 o00.0 Domestic 78,725 52.5 (of which Government-owned Krung Thai Bank Ltd.) (24,592) (16.4) Foreign 71,275 47.5 (of which located in Thailand) (41,108) (27.4) Regional Project Department Asia Regional Office April 8, 1974 Annex 4 INDUSTRIAL FINANCE CORPORATION OF THAILAND Board of Directors as of December 31 1973 DIRECTORS DATE OF ELECTION Sommai Hoontrakool* Chairman, IFCT December 3, 1973 Prayoon Kanchanadul General Manager, IFT November 7, 1972 Soinboon Nandhabiwat Manager Foreign Department May 28, 1970 The Laem Thong Bank, Ltd. K. Wada" General Manager December 13, 1972 The Bank of Tokyo, Ltd. (Bangkok Branch) W.COL. Brown Manager December 13, 1972 The Chartered Bank, Ltd. (Bangkok Branch) P.M. Ryan Manager December 13, 1972 The Hongkong and Shanghai Banking Corporation (Bangkok Branch) Chai Sophonpanich Deputy Managing Director April 2, 1973 Bangkok Insurance Co., Ltd. Thienchai Srivichit* Assistant General Manager April 4, 1973 Krung Thai Bank, Ltd. Bancha Lamsam President April 4, 1973 The Thai Farmers Bank Ltd. OBSERVER Kraisri Chatikavanij Ministry of Finance, Fiscal Policy Officer Members of Executive Committee Regional Project Department Asia Regional Office April 9, 1974 THE INDUSTRIAL FINANCE CORPORATION OF THAILAND Loan Approvals, Commitments and Disbursements, 1970 through 1973 and Cumulative to December 31, 1973 (million bahts) Cumulative Cumulative Dec. 31. 1969 1970 1971 1972 1973 Dec. 31,1973 No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount Approvalsi. Loans Domestic Currency 292,37 19.86 93.92 56.43 87.4i 549.99 Special Yen - - 89.96 82.12 55.55 227.63 Foreign Currency 214h79 59.10 40.60 38.17 126.74 479.40 (US$ equivalent) X.033) (2.8$) (14 a) (634) (23.31) Total 0 9 708._6 18 6 16 269.70 210 h0 EFauity Participations Domestic Currecy _ 1 0218 2 011.5 Commitmentsl/ Loans Domestic Currency 280.30 28e73 66.67 67.70 22.52 465.92 Special Yen - . 69.91 93.67 47.82 211.40 Foreign Currency 201.99 57e73 46.89 42.58 80.88 430.07 (US$ equivalent) 9.71) (C2 77) (2) (2.0 ) 403) ( 81) Total l _82.20 22 ' 10 19101039 E,quity Participations Domestic Currency 1 _ 2* 1 - 0.18 2 _ 2 Disbursements Loans Domestic Currency 266.09 27.47 71.53 48.00 32.64 445.73 Special Yen - - 22.00 97.61 45.81 165.42 Foreign Currency 161.62 45,88 63.81 39.52 17.72 328.55 (US$ equivalent) 7 2 2) (3j07) 7)B]J Total 1427.713 2L-.1 2______ Equity Participations Domestic Currency 0 0.10 _ 1/ Figures represent net approvals and commitments in each year after cancollations and withdrawals. Regional Project Department Asia Regional Office April 8, 1974 INDUSTRIAL FINANCE CORPORATION OF THAILAND Analysis of Loan Commitments by Size, Duration and Geographical Distribution 1970-73 and Cumulative to December 31, 1973 (million bahts) Cumlative to Cumulative to Dec. 31. 1970 1971 1972 1973 Dec. 31t 1973 No. Amount o No. Amount % NoAunt unt 7 No. Amount % Size Up to 2 million baht 82 89.15 15.7 3 3.23 1.8 2 2.88 1.4 2 2.34 1.6 89 97.60 8.8 2.1 to 4 20 58.62 10.3 5 15.04 8.2 5 13.50 8.4 3 9.87 6e5 33 97.03 8.7 4.1 to 6 it 18 89.64 15.8 4 17.15 9.3 2 10,26 4.9 2 10.61 7.0 26 127.66 11. 6.1 to 10 it 19 157.71 27.7 4 31.67 17.3 3 21.20 10.2 2 19.45 12.9 28 230.03 20.7 10.1 to 20 t tt 11 173.63 30.5 3 37.60 20.5 5 84.22 40.5 2 21.79 14.4 21 317.24 28.6 Over 20 tt- - - 3 78.78 42.9 2 71.89 34.6 2 87.16 57.6 7 237.83 21.7 TOTAL 150 568.75 100 22 183.47 100 19 203.95 100 13 151.22 100 204 1.107.39 100 Duration Up to 2 years 1 2.00 0,4 - - - - - - - - - 1 2.00 0.2 2.1 to 4 28 33.11 5.8 4 7.48 4.1 2 4.18 2.0 1 5.64 3.7 35 50.41 4.6 4.1 to 6 " 65 189.75 33.3 12 100.42 54.7 7 49.15 25.5 10 96.11 63.6 94 435.43 39.3 6,1 to 8 it 42 213.79 37.6 6 75.57 41.2 8 104.00 50.1 2 49.47 32.7 58 442.83 40.0 8.1 to 10 " 12 95.44 16.8 - - - 2 46.62 22.4 - - - 14 142.06 12.8 Over 10 2 34.66 6.1 - - - - - - - - - 2 34.66 3.1 TOTAL 150 568.75 100 22 183.47 100 19 203.95 100 13 151.22 100 204 1.107.39 100 Geographical Distribution Greater Bangkok2/ 78 293.47 51.6 11 66,67 36.4 14 130.84 64.2 4 61.81 40.9 107 552.79 49.9 Central 32 173.79 30.6 8 98.18 53,5 4 53.11 26.0 5 73.88 48.9 49 398.96 36.1 East 5 22.40 3.9 1 2.24 1.2 1 20.00 9.8 2 13.19 8.7 9 57.83 5.2 North East 15 39.07 6.9 - - - - - - 1 1.15 O.7 16 40.22 3.6 North 11 23.31 4.1 2 16.38 8.9 - - - 1 1.19 o.8 14 40.88 3.7 South 9 16.71 2.9 -- - - - - - 9 16.71 1.5 TOTAL 150 568.75 100 22 183.47 100 19 203.95 100 13 151.22 100 204 1107.39 100 Greater Bangkok includes Bangkok, Thonburi, Nontaburi, Samutprakarn Regional Project Department I Asia Regional Office April 9, 1974 INDUSTRIAL FINANCE CORPORATION OF THAILAND Loan Commitments by Industry, 1970-1973 and Cumulative to December 31, 1973 (million bahts) Cumulative Cumulative Dec. 31 1970 1971 1972 1 Q7R Dec. 31, 1973- T1Amunt No. Amount % No. Amount % No. Amount % -No. Amount % I, Customer Goods Industries Food 12 60.3 10.6 1 12.3 6.8 2 50.0 24.5 4 24.2 16.0 19 146.8 13.3 Tobacco 9 19.1 3.4 - - - - - - - - - 9 19.1 1.7 Textiles 26 33.9 5.9 2 13.0 7.1 2 7.4 3.6 2 53.8 35.6 32 108.1 9.8 Furniture & Fixtures - - - 1 4.3 2.4 - - - - - - 1 4.3 0.4 Printing and Publishing 1 6.9 1.2 - - - - - - - - - 1 6.9 o.6 Sub Total 48 120,2 21.1 4~ 2 9, 16.7 2 .1 6 7 8.07 1- 62 285.2 25. II. Intermediate Goods Industries Wood and Cork 5 6.8 1.2 2 8.2 4.5 2 8.2 40o 1 3.4 2.3 10 26.6 2.4 Paper & Paper Products 7 61.2 10.8 - - - 1 3.1 1.5 - - - 8 64.3 5.8 Rubber & Rubber Products 4 7,0 1,2 1 2,1 1.2 - - - _ _ _ 5 9.1 008 Chemicals 16 38.3 6v7 2 13.1 7,2 3 8.7 4D3 1 38.4 25,4 22 98.5 8.9 Non-Metallic-Minerals 12 85.1 1409 5 69.4 38.2 1 6.8 3.3 3 17.9 11,8 21 179.2 16.2 Petroleum Products 1 0.8 0.2 - - - - - - - - - 1 0,8 0.1 Sub Total 45 1992 30 10 9288 OD12 -1 7 26,8 13.1 5 59.7 3905 67 378.5 34.2 III. Capital Goods Industries Basic Metals 3 29.7 5.2 - - - - - - - - - 3 29.7 2.7 Metal Products 11 4700 8.3 1 705 4.1 2 59.1 29D0 1 4.0 2,6 15 117.6 10.6 Machinery,except Elect.. Mach. 1 2.0 0,3 1 2.2 1.2 - - - - - - 2 4D2 0.4 Electrical Machinery 11 32,4 5.7 3 6.8 2.7 - - - _ - - 14 39.2 3.5 Transport Equipment 4 501 0.9 - - - - - - A4 -- l 04 Sub Total 30 116.2 20.4 5 16.5 5.0 2 59.1 29D0 1 4.0 2.6 3d 195.b 17 IV. Miscellaneous Industries Ocean & Coastal Water Fishing - - - - - - 1 15.2 7.5 - - - 1 15.2 1.4 Hotel 9 5303 9.4 1 12.7 7.0 - - - - _ _ 10 66.0 6.0 Transport, etc. 7 49.2 8.7 1 23.2 12.8 4 42,4 20,8 - - - 12 114.8 10.3 Construction 2 7.9 1.4 - - - - - - 1 9.5 6.3 3 17.4 1.6 Stone Quarrying, Clay & Sand Pit Mining 1 11 002 1 8.7 4.8 - - - - - - 2 9.8 0.9 B Mining 6 9.5 1.7 - - - - - - - - - 6 9A5 0.8 CD Miscellaneous Manufacturing 2 12.1 2,1 - - - 1 3.1 1.5 - - - 3 15.2 1.4 X Sub Total 27 13301 - 44i. c Z4z0 6 6007 295.7 1 95 07 37 247.9 22.4 - Total 150 568.7 100 22 183.5 100 19 204,0 100 13 151.2 100 204 1.107L4 100 Regional Project Department Asia Regional Office April 9, 1974 ANNEX 8 THE INDUSTRIAL FINANCE CORPORATION OF THAILAND Interest Rates and Charges as of December 31,1973 (Per Annum) Local Currency Foreign Currency Interest Rates 10.5% 9.5% Commitment Charges 3/4% 3/4% Penalty Charges Interest Payments (default-} 11.0% 10.3% Commitment Charges (default) 15.0% 15.0% Principal Payments 1st default 11.5% 10.5% 2nd " 12.5% 11.5% 3rd " 13.5% 12.5% 4th n 14. 5% 13.5% 5th " 15.0% 14.5% 6th " 15.0% 15.0% Guarantee Fee 1% 1% 1/ IFCT agreed during negotiations to raise the foreign currency lending rate to 10%, when the foreign exchange risk agreement becomes effective (the agreement is expected to be signed in April 1974). Regional Project Department Asia Regional Office April 8, 1974 Annex 9 Page 1 of 4 INDUSTRIAL FINANCE CORPORATION OF THAILAND Foreign Exchange Risk Agreement between the Industrial Finance Corporation of Thailand and the Ministry of Finance Pursuant to Section 25 of the Industrial Finance Corporation of Thailand Act B.E. 2502 (1959) as amended by the NEC Announcem.nt No. 233 concerning the consequences of the loss and profit resulting'from the change in Baht value in relation to fQreign currencies secured as loans to the Corporation from foreign lending sources, an Arrangement has been concluded by the Corporation and the Ministry of Finance as follows: 1. The Arrangement between the Industrial Finance Corporation of Thailand and the Ministry of Finance dated October 15, 1963 shall be repealed and replaced by the present Arrangement. 2. The loan for which the Ministry of Finance is required to bear the consequences of the change in Baht value in relation to foreign currencies secured as loans to the Corporation from foreign lending sources shall be that loan from a foreign source for which the Corporation requests the Ministry of Finance to bear the consequences of the change in Baht value in relation to foreign currencies under 10., and shall be that portion of the loan that is disbursed by the foreign lending source so that the indebtedness of the Corporation remains outstanding. 3. The amount disbursed to the Corporation as under 2. shall include interest, commitment charge, commission fee normally payable by the Corporation, and any other sum of money pe.7taining to the loan in foreign currencies. 4. For accepting the consequences of the change in Baht value in relation to foreign currencies as under 2., the Corporation shall pay to the Claim Account of the Ministry of Finance at the rate of 1/4% of the outstanding loan amount for each loan covered under 2., plus the yearly interest and commitment charge payable by the Corporation to the lending source. The Ministry of Finance shall entrust to the Corporation the Claim Account of the Ministry of Finance so that the Corporation may out of it provide for the loss incurred under 8.C. and for this the Corporation shall at each year-end pay into this Claim Account an interest on the balance total of this Claim Account at the rate of 6% per annum. In the event that this Arrangement is repealed and no other Arrangement is entered into, or in the event that the Corporation decides to liquidate its business, the fund available under this Claim Account 1/ The Agreement is expected to be signed in April 1974. Annex 9 Page 2 of 4 of the Ministry of Finance shall be delivered up as the Kingdom's revenue. 5. For each loan covered under 2., the Corporation shall set aside a sum of no less than 1% per annum of the loan that remains outstanding to the foreign lending source plus the yearly interest and commitment charge payable by the Corporation to the lending source, and this sum shall constitute the Provision for Exchange Risk. The rate of the sum to be set aside for the Provision for Exchange Risk as under the above Paragraph .may be modified when the financial situation requires and Parties of this Arrangement agree to the modification. 6. For each loan covered under 2., the Corporation shall keep a record and a Provision for Exchange Risk Account. After a loan has been paid off, &ny available balance of the Provision for Exchange Risk Account on that loan shall be transferred over to IFCT General Reserve. 7. Calculation of the amount to be put into the Claim Account under 4., and the Provision for Exchange Risk under 5., shall be worked out at the end of each month on the basis of the loan that remains outstanding to the foreign lending source on the last day of the month plus that month's interest and commitment charge payable by the Corporation to the lending source. Conversion of foreign currencies into Baht shall be made at par value or, if this is not available, the average selling rate of commercial banks as compiled by the Bank of Thailand shall apply. 8. A. The loss or profit resulting from the change in Baht value in relation to foreign currencies shall be based on the rate of exchange prevailing on the date IFCT sells for Baht the foreign currency drawings from foreign currency loans against the rate of exchange prevailing on the date IFCT buys against Baht the foreign currency required to effect repayment of the loan-drawings and/or payment of interest and commitment charge thereon. Repayments shall be made in the order of the drawings made from the loans. B. Any profit arising from the change in Baht value in relation to foreign currencies shall be paid into the Exchange Risk Profit Account to set off the loss under C. (i). C. When a loss is incurred by the change in Baht value in relation to foreign currencies, the following measures shall be adopted:- Annex 9 Page 3 of 4 (i) The loss shall be deducted from the Exchange Risk Profit Account under B. (ii) If the loss is not thus covered, the uncovered amount shall be deducted from the Provision for Exchange Risk under 5. to such an extent that it will not reduce that account below 25% of the balance at that time. (iii) In the event that the loss still is not covered, it shall be deducted from IFCT General Reserve but deduction in this case shall not be in an amount greater than that transferred to IFCT General Reserve from the Provision for Exchange Risk Account under the second Paragragh of 6. (iv) If the loss is still not covered, it shall be deducted from the Claim Account of the Ministry of Finance under 4. (v) In the event that the loss is not covered after measures (i) to (iv) have been taken, the Corporation shall pay off the deficit amount and shall be reimbursed by the Ministry of Finance at the proper time. The Corporation shall immediately inform the Ministry of Finance after it has taken this action. 9. After the Ministry of Finance has made the reimbursement under 8.C.(v), IFCT shall pay, in addition to the amount payable under 4., a yearly fee at the rate of Baht one million per annum, irrespective of the number of reimbursements made by the Ministry of Finance. Payment in this connection shall commence with the year following payment made by the Ministry of Finance under 8.C.(v) until the total sum paid out as fees equals to the payment made by the Ministry of Finance. In the event that the Corporation liquidates its business before the full amount expended by the Ministry of Finance under 8.C(v) can be paid off,the residual amount of Provision for Exchange Risk Account shall be utilized to pay the Ministry of Finance an amount not greater than that paid out under 8.C.(v). 10. The Ministry of Finance shall assume responsibility to the foreign lending sources concerned over the consequences of the loss and profit resulting from the change in Baht value in relation to foreign curr- encies for all loans contracted by the Corporation against payment of which the Ministry of Finance provides guarantee. Loans not covered by the Ministry of Finance's guarantee shall be given a case-by-case consideration. 11. A detailed account on every loan outstanding to the foreign lending source under 2. as of June 30 and December 31 of each year shall be prepared and submitted by the Corporation to the Ministry of Finance within fifteen days of the aforementioned dates. Azinex 9 Page 4 of 4 The Corporation shall furnish any other documents relevant to the above to the Ministry, of Finance when the latter requires. 12. The above Arrangement may be modified to meet the expediency and need of each case. Any modification duly confirmed in writing by th-s Parties shall become binding forthwith. Regional Projects Department Asia Regional Office April 8, 1974 INDUSTRIAL FIA4CR CORPORATION OP THJILAND ANNEX 1D Resources as ofDecember 31, 1973 MAount (.'0°°°) Repayments 13t.m-orubt. ( Repayments Grace Interest Rate Paid by equivalent equivalent Term Period IFCT Remarks Local Currency Share Capital 15o,ooo 7,500 Reserves and Surplus 55,235 2,762 205,235 10,262 From the Thai Government: 1st Loan j/ 15,000 750 30 yrs. from April 1960 15 yro. Interest free Subordinated to paid-in Fixed amortization schedule share capital in event w/yearly repayrents of liquidation (Quasi- equity). 2nd Loan 20,000 1,000 50 Yrs. from November 1962 30 yrs. 1st 20 yrs. interest Subordinated to paid-in Fixed amortization schedule free, next 20 yrs. 3% share capital in event w/yearly repayments p.a., last 10 yra. 5% of liquidation (Quasi- p.a. equity). 3rd Loan 13,851 693 50 yrs. from December 1962 30 yro. Interest free Subordinated to paid-in Fixed amortization schedule share capital in event w/yearly repayments of liquidation (Quasi- equity). 4th Loan 30,000 1,500 15 yrs. from September 1965 2-1/2 6% per anmum Fixed amortization schedule yrs. w/balf yearly repayments 5th Loan 20,000 1,000 30 yrs. from April 1967 14 yrs. 6% per asnum Subordinated to paid-in Fixed amortization schedule share capital in event w/yearly repayments of liquidation (Quasi- equity). Debentures: lst Issue 30,000 1,500 10 yrs. from April 1968 7% p.a. A guarantee fee Redeemable any time be- Repayrent/interest guaranteed of 0.5% to be paid to fore 10 years at IFCT's by Government Ministry of Finance in option. 10 yearly instalments 2nd Issue 50,000 2,500 10 yrs. from October 1968 7% p.a. A guarantee fee Redeemable any time be- Repayment/interest guaranteed of 0.5% to be paid to fore 10 years at IFCT's by Government Ministry of Finance in option. _ _____ 10 yearly,instalmbnto Sub-total 384-086 19.205 Foreign Currency 5fW lst loan 82,427 4,121 15 yrs. from Decerber 1963. 2s yra. 5-1/2% p.a. Loan for DM 11 million. Repayments linked to IFCT's Closed: nothing avail- collections. able for commitment. KfW 2nd Loan 37,280 1,864 20 Yrs. from January 31, 1969 5 yro. 5-1/4% p.a. Loan for DN 4,975 mil- with fixed amortization lion. Nothing available schedule comsencing June 1974 for commitment. KfW 3rd Loan 74,934 3,747 30 yrs. from August 30, 1973 10 yrs. 6.5% p.s. IFY collections may with fixed amortization schedule be used for relending commencing December 31, 1983 in foreign or domestic currency AaDB lt Loan I/ 98,239 4,912 15 yrs. from April 1968. 2 yrs. 6-7/8% p.a. Nothing available for Linked to projects' amortiza- cormmitment tion schedules AeDB 2nd Loan 200,000 10,000 15 yrs. from April 1970. 2 yrs. 6-7/8% p.a. 0s$ 277,596.38 available Linked to projects' amortiza- for coasitment at Dec. tion schedules 31, 1973. Special Yen Loan 21414,307 12,215 Repayments are linked to 7% p.a.,with guarantee To be utilized for pay- IFCT's collections fee of 0.5% on accept- ment of imports from ance of P/N to Ministsy Japan. Y 80 million of Finance available as at Dec. 31, 1973 Danish Kroner 24 yrs. from February 1972 6-1/2 Interest-free under the Nothing available for Loan 20,694 1,035 Fixed amortization schedule, yro. provision that out of comritment. semi-annual repayments com- IFCT's total earnings, mencing September 1, 1978 only 3% will be taken as income, the reminder -- will be set aside as Sub-total 757,881 37.894 reserves Total Resources ?6 57 '099 J From US counterpart funds. P Froceeds of the liquidation of IFCT's predecessor, the Industrial Bank of Thailand Net of Loan Agreement of DM 5 million. Net of Loan Agreement of 133$ 5 million Special Yen Loan of 1 3,600,000,000 (computed at the comtitted rate average approx. Y 100 = Bt. 6.786 ), authorized by the Thai Governrent through the Bank of Thailand on March 2, 1971. This loan is disbursed in Yen, but has to be repaid in Baht at the rate of exchange prevailing at the date of commitment. Regional Project Departent Asia Regional Office 4ril 8, 1974 INDUSTRIAL FINANCE CORPORATION OF THAILAND Analysis of Arrears (Amounts in thousand baht) 1. Trend in Arrears Principal of Arrears as Loans in Arrears Principal & Principal of % of Total as % of Total Month Interest in Arrears Loans in Arrears Loan Portfolio Loan Portfolio June 30, 1971 21,653.8 853476.6 5.7 22.4 " 30, 1972 24,601.8 73,)447.5 4.7 14.0 " 30, 1973 10o.6495 60,394.3 1.8 10.1 Dec. 31, 1973 12,688.8 643400.6 2.1 10.6 2. Arrears Position as of December 31, 1973 Age of Arrears 0-3 months 2 615.3 25,226.1 0o4 4el 3-6 months 324h4 318.4 0.1 0.1 6-12 months 911.7 4,937.8 0.1 0.8 12-18 months 4,962.5 26,206.5 0.8 4.3 18-24 months 2,229.3 53858.9 0.4 1.0 Over 24 months 1,645.6 1X85209 0.3 ° 12,688.7 64)400o6 2.1 10, Regional Project Department Asia Regional Office April 9, 1974 Annex 12 INDUSTRIAL FINANCE OORPORATION OF THAILAND Summarized Balance Sheets as of December 31, 1969-1973 (thousand baht) December 31 1969 1970 1971 1972 1973 - - ------Audited ------------------ Current Assets Cash 798 3,047 3,496 2,297 1,710 Deposits 62,200 42,000 89,150 74,500 118,530 Government securities 1,160 1,160 1,160 1,160 1,160 Accrued incom 9,126 14,999 17,234 26,128 19,376 Sundry debtors 620 477 499 414 1,407 Prepaid expenses 22 20 23 1)o 71 73,926 61,703 l 2 Loans Domestic currency 174,994 176,911 216,655 228,871 228,961 Foreign currency 145,111 196,423 255,558 365,771 380,348 Less: provision for doubtful I loans ( 300) (2,0) ( 8.200) ( 8,200) t08 200) 319,85 ~371,334 464,013 586,442 'J., Equity Investments 250 250 250 250 350 Property & Equipment (net) 5,979 6,ooo 6,181 6,546 25,014 Total Assets 399,960 439,287 582,006 697,877 768,730 LIABILITIES AND EQUITY Current Liabilities Accrued expenses 5,256 5,675 10,847 14,103 9,983 Sundry creditors 1,288 2,860 4,918 1,309 7,133 Staff provident fund 1,095 1,349 1,592 1,715 2,189 Unpaid dividend 8 10 11 12 6 Proposed dividend 4.250 4,00 8,249 9g000 10 368 I11,97 2 17 2 69139 _6,1 Long-Term Debt Foreign Currency: KfW 60,458 63,359 66,385 54,450 47,925 IBRD 9,672 4,1o5 541 - - AsDB 69,770 103,788 160,258 178,291 153,356 Danish Government Credit - - - 1,631 5,261 Local Currency: Special Yen Loan - - 21,809 118,672 154,394 Government loans 83,080 82,210 81,O51 79,600 77,880 AID 15,000 15,000 15,000 15,000 15,000 Debentures 80,000 80 000 80 ooo 80 ooo 80 00o 317.9180 _______ 42 0 o3~ Equity Paid-in capital 50,000 50,000 100,000 100,000 150,000 Retained earnings: Appropriated to reserves 19,887 26,181 31,o40 43,756 54,827 Unappropriated 196 250 3 338 408 70,083 376 431 1 3 33 X=235 Total Liabilities and Equity 399,960 49 ,2872 697.877 0 Contingent Liabilities 17,350 94,425 74.105 59,ooo 67.444 (guarantees) _ Current ratio 6.2 4.3 4.4 4.o 4.8 Long-term debt/equity 4.8 5.8 3.8 4.1 2.9 Long-term conventional debt/ equity plus quasi equity 2,0 2.6 2.1 2.4 1.9 Reserves and provisions as % of portfolios, including guarantees 6,0 6.1 7.3 8.0 9.4 Regional Project Department Asia Regional Office April 9, 1974 Annex 13 INDUSTRIAL FINANCE CORPORATION OF THAILAND Sunmarized Income Statements for 1969 through 1973 (thousand baht) 1969 1970 1971 1972 1973 Income (------------------Audited------------------) Interest and charges on loans 24,367 31,587 38,192 52r651 58,434 Interest on temporary invest- ments and deposits 5,418 6,454 10,708 7,492 8,052 Others 155 189 260 69 39 Total income 29,940 38,230 49,160 60,212 25 Expenses Interest on indebtedness 14,230 18,418 22,004 28,392 33,622 Administrative and general 5,911 6,986 7,509 9,607 10,922 Depreciation of property and equipment 265 283 324 430 523 Provision for foreign currency revaluations - - - 36 59 Loss on foreign exchange - - - - 139 Provision for doubtful loans 300 1 700 6,200 - - Total expenses 20,706 27,387 36,037 45 ,6 Net Income _ 9,234 10 843 1 21 260 Profit (loss) on sale of assets 11 4 1 2 (21) Retained earnings brought forward 114 196 250 305 338 Total 9,359 11,043 13,414 2 ,o 21,577 Profit Allocation Dividend 4,250 4,500 8,249 9,000 10,368 General reserve 2,130 3,038 900 6,100 4,400 Legal reserve 463 543 660 1,100 1,100 Provision for possible loan loss 2,320 2,712 3,300 5,500 5,031 Reserve set aside from interest earned on Danish Government loan - - - 16 270 Retained earnings carried forward 196 250 305 338 408 Total 9,359 11,043 13,41 21,77 Ratios Net income/average assets (5) 206 2.6 2.6 3.4 2.9 Net income/year-end share capital (%) 1805 21.7 1301 2107 14.1 Average income from term loans 8.5 9.1 9.1 9,9 9.7 Average cost of term debt 5.0 5.5 5.7 6.0 603 Interest spread 3.5 3.6 3.4 3.9 3.4 j IFCT is tax-exempted. Regional Project Department Asia Regional Office April 9, 1974 Annex 14 INDUSTRIAL FINANCE CORPORATION OF THAILAND Projected Approvals, Commitments and Disbursements, 1974-1978 (million baht) Year ending December 31 1973 1974 1975 1976 1977 1978 (Actual) Approvals Foreign currency loans 182 360 310 340 370 400 Local currency loans 87 75 80 90 100 110 Sub-total 269 435 390 430 470 510 Equity investments 12 35 30 40 50 60 Total approvals 281 470 420 470 520 570 Connitments Foreign currency loans 128 388 310 335 365 390 Local currency loans 23 87 80 go 95 105 Sub-total 151 475 390 425 460 495 Equity investments - 47 30 40 50 60 Total commitments 151 522 420 465 510 555 Disbursements Foreign currency loans 63 377 300 325 350 375 Local currency loans 33 101 75 85 95 100 Sub-total 96 478 375 410 445 475 Equity investments - 47 30 40 50 60 Total disbursements 96 525 405 450 4 535 Regional Projects Department Asia Regional Office April 9, 1974 ANNEX 15 INDUSTRIAL FINANCE CORPORATION OF THkILAND ProJected Balance Sheets. 1974-1978 (million baht) December 3l 1973 1974 1975 1976 1977 1978 (Actual) Current Assets Cash, revolving funds, and short- term deposits 120,24 92.91 87.96 96.06 120.25 158.97 Thai Government's securities 1.16 1.16 1.16 1.16 1.16 1.16 Receivable, accrued income, etc. 20.86 43.34 .5388 64.24 74.64 84.31 137.4 143.00 161,.4b 160 Outstanding Loans and Investments Foreign currency loans 380.35 684.63 896.65 1,092.93 1,279.15 1,453.87 Domestic currency loans 228.96 276.45 298.13 331.52 375.76 4i5.59 Less: Provision for doubtful loans (8.20) (15.24) (19.91) (24.50) (29.11) (33.4o) Equity investments 0.35 47.35 77.35 117.35 167.35 227.35 Less: Provision for doubtful investment - 94) (1.54) 234) (3.34)) 601.4 992.25 1,250.68 1 1,789.81 2.058.87 Fixed Assets 25.01 32.48 42.27 32.95 39.07 37.48 Total assets 1 4 1.4 5 6.3724 231340.79 LIABILITIES ND EQUITY Current Liabilities Dividend payable 10.37 14.25 15.00 15.00 15.00 15.00 Account payable and other current liabilities 19.31 11.60 16.61 20.38 23.93 27.16 29.68 =258 31.61 35.38 38.93 42.16 Lone-Term Debt Foreign currency 360.94 695.60 944.18 1,194.52 1,463.99 1,729.31 Local currency 172.88 22n 9 218.04 _._213.39 208.54 2o3.51 .82 916.L9 1.1222 T0-791 1672.53 1.932.82 Provision for foreign exchange risk (including Govt. claim account) - 1.45 6.44 1557 28.66 45.29 Special fund " - 0.81 4.10_ 10.87 20.21 30.29 Equity Share capital 150.00 J50.00 150.00 150.00 150.00 150.00 Reserves 544.82 67.00 80.91 95.83 113.64 139.08 Unappropriated surplus 0. 0.54 0.6 0.81 0.96 1.15 205.23 217354 2.5 246-.64 264.60 290.23 Total Liabilities & Equity _8.7 1.162.14 1E ; 2.024.3 2. Contingent liabilities 67.44 58.76 57.42 56.30 57.42 57.50 Long-term debt/equity 2.9 4.5 5.3 5.9 6.5 6.9 Reserves and provision as % of year-end portfolio (loans, investment. and guarantees ) 9.4% 7.8% 7.8% 7.7S 7.8% 8.3% I/ Portion of interest under KEW 3rd and 4th loans to be utilized for: 1. Coverage of foreign exchange and credit risks; 2. Studies and promotional activities which will increase social and economic benefits of investments; and 3. Measures contributing to improve IFCT's project work. Regional Projects Department Asia Regional Office April 9, 1974 Annex 16 INDUSTRIAL FINANCE CORPORATION OF THAILAND Projected Statements of Income, 1974-78 (million baht) Year ending December 31 1973 1974 1975 1976 1977 1978 (Actual) Income: Interest on loans 55.98 81.80 104.52 127.38 151.15 175.08 Fines, conmitment charge 2.45 1.72 1.64 2.14 2.21 3.01 and guarantee fees Dividend income - - - 2.35 3.85 6.79 Income from deposits 7.97 9.45 7.16 6.31 5.67 7.78 Income from Government 0.08 0.08 0.08 0.08 0.08 0.08 bonds Other income 0.04 0.57 2.36 1.75 1.97 2.19 Total Income 66.52 93.62 115.76 140.01 164.93 194.93 E.xpenses:- Interest and commitment 33.62 43.00 58.72 70.08 82.89 98.37 charge on borrowings Salaries and other personnel 8.57 12.10 14.07 15.69 17.56 19.59 expenses Other administrative and 2.35 2.13 2.29 3.90 4.11 4.31 general expenses Depreciation of property and 0,52 1.03 o.86 1.95 1.85 1.74 equipment Provision for doubtful loans - 7.98 5.27 5.39 5.61 5,49 and investments Provision for the special - 0.81 3.29 6,77 9.34 10.08 fund (KfW interest) lJ Provision for foreign exchange 0o06 1.16 3.99 7.30 10.47 13.30 risk Government fees on foreign - 0029 1.00 1.83 2.62 3.33 exchange risk (Claim Account) Loss on sale of assets and loss 014 - - - - - on foreign exchange Total Expenses 45.26 68.50 _9049 112.91 134.45 156.21 Net Profit 21.26 25.12 26.27 27.10 30.48 38.72 Appropriations: Dividend 10,37 14.25 15.00 15.00 15.00 15.00 Reserves and unappropriated 10.89 10.87 11.27 12.10 15.48 23.72 surplus Total Appropriations 21.26 25.12 26.27 27.10 30.48 38.72 Ratios Rate of dividend (%) 9.0 9.5 lo.o 10.0 10.0 10.0 Dividend pay-out ratio (%) 48.8 56.7 57.1 55.4 49.2 38.7 Net income/average assets (%) 2,9 2.6 2.0 1.7 1.6 1.8 Net income/average net worth (%) 12.1 11.8 11.7 11.3 11.9 13.9 Administrative expense/average 1.5 1.5 1.3 1.2 1.2 1.1 assets (%) I/ Portion of interest under KfW loans to be used for special purposes (see footnote to Annex 15). Regional Projects Department Asia Regional Office April 9, 1974 Annex 17 INDUSTRIAL FINANCE CORPORATION OF THAILAND Projected Cash Flow Statements, 1974-78 (million baht) Year ending December 31 1973 1974 1975 1976 1977 1978 (Actual) Sources Profit before tax 21.24 25.12 26.27 27.10 30.48 38.72 Add-back non-cash charges (depreciation, etc.) 4.38 12.71 17.18 26.20 32. 35.85 Cash generation from operations 2rr2 3.83 43.7 52.8 Increase in share capital 50.000- - - Drawn-down: Foreign currency borrowings 63.53 405.30 333.00 363.00 392.00 406.oo PL 480 Loan - 50.00 - - - - Loan collections: Against domestic currency loans 33.35 53.51 53.32 51.61 50.76 60.17 Against foreign currency loans 48.16 65.49 77.41 109.24 136.53 163.37 Against foreign currency loans (revolving funds) - 7.23 10.5 1948 27.25 6.1 1.0 581.53 474.30 333 6065 666.45 2 20. 619.36 517.75596.6 669.39 744.02 Uses Increase in fixed assets (decrease) 18.93 8.50 10.65 (0.37) 0.97 0.15 Disbursement of loans: Domestic currency 32.65 101.00 64.71 61.79 43.63 15.87 Foreign currency 63,53 377.00 300.00 325.00 350.00 375.00 Revolving funds - - 10.29 23.21 51.37 84,13 Equity investments - local currency 0.10 47,00 30.00 40.00 50.00 60.00 Repayments: Against domestic currency borrowings (Thai Government) 1.72 1.99 2.85 4.65 4.85 5.03 Against foreign currency borrowings 55.63 70.64 84,42 112.66 122.53 140.68 Increase in receivable, accrued income, etc. (decrease) (2.18) 22.48 10.54 10.36 10.40 9.67 Decrease in payable deferred items, etc. (increase) (2.16) 7.71 (5.01) (3.77) (3,55) (3.23) Payment of tax ---------------TAX EXEMPTION----------------- Payment of dividend 9.00 10.37 14.25 15.00 15.00 15.00 177.22 646.69 522.70 588.53 67.2-0 702.30 Opening balance of cash and short- term deposits 76.80 120.24 92.91 87.96 96.o6 120.25 Cash surplus (deficit) 43.44 (27.33) (4.95) 8.10 24.19 38.72 Ending balance of cash and short- term deposits 120.24 92.91 87.96 96.06 120.25 158.97 Debt service coveragel/ 1.50 1.68 1.54 1.48 1.56 1.63 J Debt service coverage is calculated as: (Net profit + interest on borrowings + loan collections)/(interest on borrowings + loan repayments) Regional Projects Department Asia Regional Office April 9, 1974 Annex 18 INDUSTRIAL FINANCE CORPORATION OF THAILAND Estimated Disburserent Schedule for the Proposed Loan (US$1,000) 1974 July -September 150 October-December 300 Sub Total 450 1975 January-March 750 April -June 1,050 July -September 1,200 October-December 1,275 Sub-Total 4,275 1976 January-March 1,350 April -June 1,,425 July -September 1,425 October-December 1,050 Sub Total 5,250 1977 January-March 750 April -June 525 July -September 300 October-December 225 Sub Total 1,800 1978 January-March 150 April -June 75 Sub Total 225 TOTAL 12L000 Regional Department Area Regional Office April 9, 1974 INDUSTRIAL FINANCE CORPORATION OF THAILAND ORGANIZATION CHART AS OF MARCH 1, 1974 BOARD OF DIRECTORS Chairman Sommai Hoontrakool Executive Committee * - Chairman C a s Sommai Hoontrakool L_ GENERAL MANAGR, Foreign Financial Advisor Prayoon KDnchanadn t Sunit GuDpt |DEPUTY GENERAL MANAGER| Waree Bhongsvej . P Legal~~ Counsel l E Investmc nt Committee onomic Andsoo '~~~~~visoDviinrIte Chalerm Niyomthei~ ~~~~~~~~~~~~~~~~~~~~~~~~ Phdoong TCnsrnrTprsmUo ihyba hnogPnaii ie ihayabangse Chn|rpeu iiaKrar Projects Department | Operations Department Administration Department | Tira S vadit _ | Tos Pan tumasen lVlVaree Bhongsvej(acting) | | Foreign Foreig Engineering Adviso tc l cnomic Advisor I OteX __ __ ___ ___ 40 2 rEngineering Financial Analysis Market Analysis Planning & Loans & Investment Finance Accounting Secretarial & Legal Office Division Chief Division Chief Division Chief RevsearoChie Division Chief Division Chief Division Chief PersionnChel Chief Miss Sompun Mrs. Vanvilai Miss Payau Chalerm Niyomthai Padoong Tachasarintr Teparkum Udom Vichayabhai Chitpong Piaratisit Riley Vibhatabaedys Chan Sorapralum Wiriya Kirdsiri Professionals 6 6 5 5 12 5 5 1t 4 Others 0 7 2 1 14 4L t0 40 2 6 7 6~~~~~~~~~~761 91 1 6 PROFESSIONALS 65 OTHERS 57 TOTAL 122 World 8at1k - 6151 (3R)