Risk for prime office market

Lehman Brothers Building

Lehman was a major Bangkok landlord

The collapse of Lehman Brothers Holdings, the largest bankruptcy in US history, could disrupt Thailand’s prime office market, as the 158-year-old investment bank is one of the largest holders of commercial space in Bangkok. Lehman’s global assets, listed at $639 billion as of May 31, include an estimated 50 billion baht worth of ”grade-A property, hotels and offices in Thailand”, according to Krisada Kaweeyarn, the executive adviser for Lehman’s Bangkok office.

Lehman’s office holdings cover about 100,000 square metres of space in buildings including the Italian-Thai Building, Pacific Place on Sukhumvit Road, the Mercury Tower and the Muang Thai Phatra Building.

The company also is a financier and investor in several listed property developers, including Raimon Land Plc, Grande Asset Hotels and Property, and Ascon Construction.

Mr Krisada, who declined to confirm Lehman’s borrowers, said the bank had outstanding commitments of 10 billion baht to three listed companies.

As Lehman was in no position to service its obligations, the companies could have funding troubles unless they secured new credit lines.

Pattanapong Tanumathaya, the chief executive of Ascon Construction, said the company was already moving to arrange new funding for its 16-billion-baht Dubai project.

”We approached Lehman several months ago about a loan, but they had delayed a decision because of internal problems,” he said. ”We are in talks with other funding sources, both in Thailand and abroad.”

Ascon shareholders also were interested in repurchasing the 7.5% stake held by Lehman in the company, Mr Pattanapong said.

Raimon Land executives also denied any impact on the company from the Lehman collapse.

In any case, Mr Krisada said the impact on the Bangkok property market could be substantial if the US bankruptcy court forces a liquidation of assets.

”I think that any new buyer would need significant funds if these properties were to come on the market at once,” he said.

”Commercial banks are restricted in investment by the Bank of Thailand. Foreign funds may have the money, but many are quite cautious at the moment.”

Mr Krisada warned that the gyrations in the global financial market were ”only the start of the crisis”.

”It’s unlikely that there will be a foreign white knight [to buy Lehman's assets]. Everyone is simply unwinding their positions,” he said.

Mr Krisada said that Lehman’s Bangkok office, with fewer than a dozen staff, was in no position to take any action, and that the Bank of Thailand should step in to help mediate with the bank’s clients and counterparties.

Authorities should also move to increase liquidity in the money market to ease the impact of the global credit crunch on local firms, he added.

Patima Jeerapaet, managing director of the property consultant Colliers International (Thailand), said he believed buyers would be ready to step in if Lehman moved to sell Bangkok properties.

While Lehman’s holdings were in prime locations in the capital, prices could go for 20% to 30% below market value if a forced sale was required.

”It’s actually a good opportunity for institutional or individual investors, both Thai and foreign, to pick up the assets,” Mr Patima said.

The direct impact of the Lehman bankruptcy, meanwhile, is focused on the equities markets, as stock markets worldwide have tumbled over fears of a full-blown US financial crisis and global recession.

Prasong Vinaiphat, the deputy secretary-general of the Securities and Exchange Commission, called on investors to remain calm in the wake of the Lehman bankruptcy.

He said that international equity markets, including the Stock Exchange of Thailand, had fallen as investors adjusted liquidity positions and foreign funds cut back their risk exposure.

”The SEC would ask investors to exercise careful judgement in trading decisions. Thailand’s capital markets remain strong and on the right path,” Mr Prasong said.

He said Lehman Brothers did not conduct any securities operations in Thailand.

The Bank of Thailand, meanwhile, is monitoring closely the potential impact of Lehman’s bankruptcy on local banks. Thai banks currently have 4.3 billion baht worth of exposure to Lehman, either through loans or in bond investments.

Asset managers have seen their foreign investment funds contract sharply with the decline in overseas securities markets.

Pichit Akrathit, the president of MFC Asset Management, said the fund had been cutting back its foreign equities and bond holdings over the past several days.

While MFC had no direct investment in Lehman securities, it did have an indirect exposure, although Dr Pichit declined to offer details.

”I think what is clear is that a global recession is a near certainty over the next several quarters,” he said.

Voravan Tarapoom, the president of the Association of Investment Management Companies, said the association would survey its members to gauge the impact of the Lehman collapse on local funds.

Mrs Voravan, also the managing director of BBL Asset Management, said foreign investors would likely continue to divest their emerging market assets, affecting the SET.

She added that BBLAM yesterday actually saw inflows into its long-term equity and retirement mutual funds double from normal levels, as investors took advantage of the sharp slide in the SET index to accumulate stocks.

”It’s good to see that investors have a good understanding of the situation, and are not panicking,” Mrs Voravan said, adding that the BBLAM funds had no exposure to US securities.