Promissory Notes

[jazzbo]

My Thai National friend runs a successful and fast-growing trucking business in NE Thailand with Blue Chip clients. He is continually being offered new contracts which he must turn down due to a shortage of company-owned trucks. He has established lines of credit with Thai banks, leasing, and finance companies which he cannot exercise because he lacks the cash to meet down payment and other upfront loan provisions.

He is now working with a stellar Bangkok law firm to design initial 10 million Baht in Promissory Notes that would be properly collateralized and structured to afford full benefit of Thai law to the Note Holders. The interest rate for a one-year Note commitment could be (depending on the size of each note and the number of Notes purchased by any one individual) in the 7.5-10% range as the firm is losing out on large contracts from internationally known customers due to the unavailability of company-owned trucks... and he has been burned too many times working with subcontractors. Any comments?

[CWMcMurray]

You would obviously have to weigh the rate of return vs the risk of the company defaulting.

Even if the promisary notes are all legally binding and everything done properly, it is still possible that the company could default just like any bond issued by any company world wide.

Without knowing anything about the comapny it is hard to advise, I guess you would be in the best position to make a decision.

Alternatively, if you really believe in the company, you may want to ask for a partnership or to purchase a portion of stock rather than "loaning money". If the company is succesful, this will be more profitable in the long run.

Of course the owner may not want to do this, but if he can not get financing elsewhere he may eventually come around.

[jazzbo]

A full offering prospectus is in the works... if one is looking for minimal risk, then Bangkok Bank currently offers 0.5% on fixed one-year deposits. BTW Inland Transport under Thai FBA cannot be foreign majority owned.

[hhgz]

"if one is looking for minimal risk, then Bangkok Bank currently offers 0.5% on fixed one-year deposits"

What does that tell you about a guy/company offering a 10% return on "properly collateralized and structured" debt? The reason he/it has to offer that rate of return is due to the RISK involved. You can paper both heaven and h4ll with prospectuses and promises that have gone bad. If it pays off, you've done well. If it does not pay off, you have no one to blame for your loss, except yourself. Your enthusiasm for this scheme reads as though you're more of a shill than an investor, and I'll pass.

[jazzbo]

OK, then. I am not a dis-interested party, nor did I claim to be so. I am just looking to see for him what the appetite is for persons who have posted on this forum looking for fixed-rate investments in Thailand.

As I said, there are major lines of credit in place with references. The final interest rate offered will be a factor of meeting disclosed risks with the money being lost by the company's not having the down payments to purchase additional company-owned vehicles. It would be more important to the owner to place the notes rather than shave a few interest points... and he might find that he needs to offer less.

As far as collateral, 'Properly' means according to Thai law; that does not necessarily mean 'Fully'.

[hhgz]

"It would be more important to the owner to place the notes rather than shave a few interest points."

The difference between 0.5% and 10% is more than just a "few interest points". The reason the bank have refused to lend your friend money is that they consider the company a risky investment. As with all other investments (real estate, stocks, bonds, your collection of thimbles), return and risk are related. Only you can make the choice of whether this is a suitable investment for your portfolio.

[jazzbo]

He is looking for about 10 million Baht in down payment because the banks HAVE already agreed to lend approximately 60 million in truck purchase financing. Whether he ends up offering 10%, 8%, or 6%, the real factor is if he losing the equivalent of 25% or 50% by not having enough company-owned vehicles to fulfill the contracts being offered.

[nakachalet]

jazzbo

since you are somewhat knowledgeable about this trucking business in thailand, you should also know the little stout chinese guy with thai name who is the owner of the trucking company making his run southwardly....

each of his truck is equipped with a satellite locator where he can see exactly where the truck is, whether the truck is parking or making the run, how fast the truck is traveling at that moment in time, which direction and which freeway the truck is taking.... he tracks each truck thru his laptop at home.... and he often calls the drivers during our dinner to tell the drivers that going at 100 kph is just too much risk for the fully loaded bed.... etc etc etc

i ran your post thru him.... his experience was that the trucking companies were more than willing to sell him brand new trucks without any cash down payment and that whenever he needed emergency cash in the neighborhood of 5 to 10 mil baht, the thai military bank was also willing to advance him the cash at prime minus 2.5 ....

he was thinking that perhaps there are some other enterprising businesses that the referenced company is involved in.... that might render the borrowing from established banking facilities difficult....

just want to pass on the information for whatever it is worth.... and it is not intended to question or doubt yours or the trucking company's ability or sincerity....

personally, my concern is.... rasing 10 mil baht for such a heavy industry should not be any problem at all.... why is it becoming a problem that the company can not raise the 10 mil cash....? and why would i want to give my cash to some company that might have already over extended itself financially....? just a personal preference, alright.

cheers

Edited October 8, 2009 by nakachalet

[jazzbo]

Thanks nakachalet. Point taken and I will not speculate on answers to your questions. I will print out and run your comments by my friend.

[jazzbo]

Nakachalet -- It was very early when I first read your post:

Your friend borrows money from TMB at Prime MINUS 2.5% ?

[jazzbo]

BTW BOT current Annual Prime rate 5.85 to 6.25

LIBOR Annual rate 1.21

So I don't see that an offer of one-year 7.5% to 10% is any overwhelming indication of inherent risk.

[jazzbo]

So maybe I'll exit the realm of the hypothetical with this: If my friend decides that it is worth it to spend the substantial legal fees to properly structure a Thai private placement, we can then see if there are enough ex-pats out there who would like to receive a fixed-income after one year at several points over prime. Again, the company's motivation is that it is declining on offered contracts due to the shortage of company-owned trucks. Everything else is just talk.

[jazzbo]

Had that chat with my friend yesterday. He has been able to to purchase some trucks at 0% down, but needs many more. GPS is great and some customers will demand it. But, and this is my comment, if you need GPS to keep tabs on your drivers, it is time to find yourself some new drivers.

[jazzbo]

Memo to that low-life shill Jazzbo -- Is this one of those typical Thai companies with say 50 employees but the organization chart reads as one-guy-at-the-top then 49 elsewhere? If so, then you better get key-man insurance. What would happen to the note holders if the top-guy was run over by one of his own trucks? Also, what about a surety (completion-type) bond as Inland Transport is in the Infrastructure category... Thai banks will give you a 1 million baht guarantee as long as you lockup 1 million baht in their bank's accounts. Surety is something else.

If this were a public offering (10 or more persons) you would be subject to the Thailand Fraudulent Borrowings Act? Keeping it private, eh? Pretty sneaky there, Kuhn J.

[Naam]

Had that chat with my friend yesterday. He has been able to to purchase some trucks at 0% down, but needs many more. GPS is great and some customers will demand it. But, and this is my comment, if you need GPS to keep tabs on your drivers, it is time to find yourself some new drivers.

nowadays any truck company which does not use GPS is working in a stone age way. and that applies to Thailand too.

[jazzbo]

I mostly agree re: GPS. But that hasn't stopped the largest shipping company in the world and the largest consumer goods company in the world from giving them plenty of business here in Thailand. As a business priority, however, a reliable driver is a lot more important than GPS... and how come you are so familiar with the Stone Age?

[Naam]

I mostly agree re: GPS. But that hasn't stopped the largest shipping company in the world and the largest consumer goods company in the world from giving them plenty of business here in Thailand. As a business priority, however, a reliable driver is a lot more important than GPS... and how come you are so familiar with the Stone Age?

i come from stone age.