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Bank recapitalisation to dominate Thai shares

BANGKOK: Recapitalisation of Thai banks is likely to be a major factor driving Thai stocks this week but gains may be capped by foreign selling following a cut in Thailand's weighting in a key regional index, analysts say.

On Friday, the composite SET index finished up 5.13 points, or 1.29 percent, on the day at 404.16 on turnover of 8.68 billion baht ($230 million). It gained 1.11 percent through the week.

Technical analysts said the index was expected to test the next resistance levels at 407 and 420 this week.

"The recap plans of Thai banks are becoming clearer than in recent months," said Weerachai Krongsamsri, senior analyst at UOB (Thailand) Securities.

Greater optimism about the recapitalisation should provide some support for the financial sector and alleviate worries about dilution of existing shareholder value.

Thai banks need to raise billions of dollars to cover loans which went bad during the financial crisis of 1997 and 1998.

About 38.5 percent of Thai lending is now non-performing, meaning it has received no income for at least three months, and this is putting a tremendous strain on the banking industry.

Several banks have sweetened their share issues with promises of warrants entitling buyers to attractive shares in the future.

Bank of Ayudhya said on Friday its directors approved a plan to issue two billion new shares and 1.7 billion warrants at an undisclosed date in the future.

Rating agency Fitch IBCA said on Saturday that Bank of Ayudhya may need to make 25 billion baht ($663 million) more provisions for bad loans, after having made 15.7 billion baht in provisions last year.

Analysts said the disclosure by Fitch IBCA confirmed views held by the market and was unlikely to have any distinct impact.

Bank of Ayudhya was the third bank to announce plans to raise more capital this month after Bangkok Bank and Thai Military Bank (TMB).

Dealers were also watching closely TMB's capital-raising plans, which are subject to review by the Thai finance ministry.

"The market is hopeful that Thai Military will succeed in raising its capital," Weerachai said.

A previous TMB capital-raising scheme was withdrawn last year after a poor response from the market.

The market will also be looking closely at a plan by state-run Krung Thai Bank to set up an asset management firm to handle its non-performing loans, which will go before the Thai cabinet on Tuesday for approval.

But whatever the success or failure of the Thai banks' plans, foreign investors may be net sellers following a re-weighting in asset allocation by Morgan Stanley Capital International (MSCI).

MSCI's influential all country Far East Free ex-Japan index will cut Thailand's weighting to about 3.2 percent from 4.2 percent from May 31 when Malaysia is included in the index and Taiwan is reweighted.

"Although the MSCI re-weighting is already digested, I think the foreign exit is not over and we don't know when it will be over," said Sukit Udomsirikul, strategist at Capital Nomora.

Foreign investors have sold about 16.5 billion baht worth net of Thai stocks so far this year, compared to net sales of 3.13 billion for the whole of 1999.

Sukit said the market would be affected by window-dressing before the closing of books by Thai firms at the end of March.

Apart from banks, analysts said telecoms, media, and electronics would be in favour as these companies are expected to benefit from the "new economy" Internet stocks.-Reuters