DBS Thai Danu Bank To Seek Shareholder Approval For Re-Capitalisation Plan

* * *

Bt11 Billion Rights Issue To Fuel Future Growth, Deal Aggressively with NPL Portfolio

* * *

DBS Bank Will Maintain Majority Stake

BANGKOK, APR. 28 - DBS Thai Danu Bank (DTDB) said today it will seek shareholder approval for a re-capitalisation plan to fuel growth initiatives and provide more flexibility to deal aggressively with its Bt 39.8 billion NPL portfolio.

DTDB said it intends to sell a portion of its NPLs, but it will also consider alternatives including increasing provisions beyond regulatory requirements and writing off NPLs.

Bank officials said DTDB's current capital base fully meets Bank of Thailand (BOT) requirements, and after the planned re-capitalisation its Capital Adequacy Ratio (CAR) will be significantly above current BOT requirements.

The planned new capital injection would be via a rights issue to existing shareholders, a private placement with new and existing investors, and a possible issue of capital securities to DBS Bank of Singapore.

The rights issue, planned to raise Bt 11 billion, would be a one-for-one rights issue. Each unit would consist of one DTDB common share at Bt 10 and one free warrant. The warrants would be five-year instruments, callable after three years, and exercisable at Bt 10 each. Existing shareholders would be entitled to subscribe for one unit for each share of DTDB share owned, and would also have the option of applying for excess units under the arrangement.

Simultaneously, a private placement to new or existing investors would be undertaken to raise up to an additional Bt 2.5 billion.

DBS Bank has committed itself to the planned transaction, and will take up the rights issue and private placement to maintain its current 52% ownership of DTDB.

In addition, DBS officials said it would buy capital securities issued by DTDB in the unlikely event the rights issue and private placement are not fully subscribed. The capital issue to DBS Bank, parent company of DTDB, would come in the form of capital securities issued to DBS Bank by DTDB similar to those issued in 1999.

Officials said DBS was not concerned if the issue ultimately led it to a larger majority share in Bangkok-based DTDB.

In making today's announcement, DTDB officials said the bank is not merely looking to grow its traditional lending business, but develop new capabilities and services attractive to increasingly sophisticated clients. Major investments are underway in information technology, with the bank focusing its business development on Treasury, Institutional and Retail Banking market segments.

DTDB, working with DBS' Regional Integration Centre in Bangkok, is moving quickly to integrate its operations with parent DBS Bank of Singapore. The focus is on transforming DTDB into a financial institution reflecting the best international practices in terms of standards, and product and service delivery to its customers.

DTDB announced on April 20 a Bt 252.6 million improvement in operating income for the first quarter compared to year-earlier results. The bank reported that since the third quarter of 1998, NPLs have been reduced by Bt 36.8 billion, a figure bank officials believe is one of the largest proportionate declines in NPLs among Thai banks.

Pornsanong Tuchinda, President of DTDB, said the goal of the re-capitalisation plan is twofold.

"The first obvious goal is to enable us to develop our business and take advantage of opportunities in Thailand as the economy recovers. A second, clearly, is to improve our balance sheet.

"We have already taken many hard decisions. We have rationalised our branch network in Thailand, and reduced the number of branches by one-third. We have reduced our workforce by 40%. We have reviewed our NPLs in more detail than any other bank in Thailand, know more about our NPL portfolio than most other Thai banks, and importantly, know how we intend to deal with it. One goal of this exercise is to put a large part of our NPL problem behind us, get back to business, and seek growth while competitors continue to grapple with their own NPL issues.

"The only way to do this is to continue to act boldly, and this is what our plan provides for. It is the right thing to do, it is the right way to do it, and given our significant progress to date, now is the right time to do it," Pornsanong said.

He said, however, it was unlikely that DTDB would deal with the NPL accounting and sale as several other banks have, by transferring NPLs at book value to a wholly-owned Asset Management Company. Instead, said Pornsanong, "The bank intends to package and sell a portion of its NPLs at a realistic market value.

"Not recognising the current market values of NPLs merely delays or moves the problem somewhere else, without actually doing anything about it," Pornsanong said.

"We have a problem here. But we are recognising it now, paying for it now, preparing for the future and putting this distraction behind us. We are dealing with our NPL situation just as forthrightly as we possibly can, and believe this is what our investors and the market wants Thai banks to do," said Pornsanong.

Chong Kie Cheong, head of DBS' Regional Integration Centre in Bangkok and chairman of the DTDB executive committee, said he expects the market will find the rights offer attractive.

"DTDB brought in much-improved results in the first quarter," he said, "and we are just now beginning to see our earlier efforts to deal with NPLs and the cost structure of the Bank bear fruit. We expect future quarters to show further progress from the time and effort we have put into growing the business and putting an improved cost structure in place.

"We are moving closer to full integration of DTDB into DBS, migrating products and capabilities into Thailand and more fully leveraging DBS' capabilities and investment in infrastructure and people.

"We sense a certain optimism in the rebounding Thailand market which is very encouraging, and we want to be equipped to take advantage of this. We believe the market recognises the opportunity, and will respond positively to this offer," Chong said.

Assuming DTDB shareholder approval at EGM scheduled for May 26, DTDB officials said the re-capitalisation would likely take place in June.