Plantations, poverty and power - Critical Information Collective

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Override Agreement” with the Thai banks. Under this agreement, the maturity of Advance Agro’s 16
billion baht debt (including the export credit guarantee facilities made available by the Thai banks) was
extended by nine years to 2012. Advance Agro also received a one year grace period on an instalment due
in 2007 when the company had to retire US$48.72 million of high-yield notes. 209
At the end of 2005, ABN AMRO and Deutsche Bank led a US$250 million share offering by Advance
Agro. Some analysts thought that the shares might be difficult to sell, because Advance Agro was
technically in default on its US bonds 210 and the company was (at the end of 2005) in negotiations to refinance
14 billion baht debt. 211
However, in the bizarre world of corporate finance, the fact that Advance Agro couldn’t repay its debts
meant that it was more likely to have a successful share offering. Mark Leahy, head of syndicate for Asia
at Deutsche Bank in Singapore, explains that
“Partly because Advance Agro went through a restructuring of its domestic debt – although with no
haircut – and was in a technical default situation with its SEC-registered 2007 notes, they have become
familiar to a number of investors, including distressed debt investors.
“This familiarity certainly helped create demand for this deal which provided a solid base of well
educated demand upon which to build.” 212
Euroweek magazine later described the deal as “highly successful”. 213
In July 2007, Advance Agro restructured its debt once again. 214
In 2001, the South China Morning Post published an article asking critical questions about the way
Advance Agro had spent the money it had raised up to that point. For example, Advance Agro’s second
pulp mill, which cost at least US$800 million, features a “Space Dome”, which is used for corporate
presentations. Advance Agro describes it as “beautiful both inside and outside”. 215 The South China
Morning Post describes it as a “carbuncle on the side, about 15 metres off the ground”. The Space Dome
was the idea of the wife of one of Advance Agro’s executives. She happens to be an interior designer. No
one from the company could tell the South China Morning Post’s journalist how much the Space Dome
had actually cost the company. 216
The Space Dome may be the tip of a very large iceberg. The South China Morning Post quoted analysts
of the company who described Advance Agro’s operations as “opaque”. In 2001, Advance Agro’s
209 “TRIS rating assings ‘BBB’ rating to ‘Advance Agro’ with ‘stable’ outlook”, Thai Press Reports, 20 October 2004.
210 “ABN, DB see off Thai banks to bring Advance Agro CCC hit”, Euroweek, 16 December 2005a.
211 Timothy Cuffe (2005) “Advance Agro ends the year on a high-yield note”, Finance Asia, 13 December 2005.
http://www.financeasia.com/article.aspxCIID=32418
212 “ABN, DB see off Thai banks to bring Advance Agro CCC hit”, Euroweek, 16 December 2005.
“Advanced Agro pcl” Euroweek, 16 December 2005.
213 “Deutsche finds victory in versatility; Best bank at overall capital raising in Asia; Investment banks’ poll – Deutsche
Bank”, Euroweek, 3 March 2006.
214 Somluck Srimalee (2007) “Paper firm looks back on decade of recovery”, The Nation (Thailand), 25 July 2007.
215 “Visit our Factory”, Advance Agro website: http://www.advanceagro.com/en/about/visitfactory.asp
216 “Thai tale told by default on bond issue”, South China Morning Post (Hong Kong), 19 June 2001.