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Dhanin Chearavanont

Dhanin Chearavanont (25): Overcoming the Asian currency crisis

The Asian currency crisis forced us to sell a 75% stake in the Lotus supermarket chain. (Courtesy of the company)

1997 turned out to be an eventful year.

Control of Hong Kong was going to be returned to China from the U.K., and I had been chosen by the Chinese government to serve as a member of the Reunification Preparatory Committee, a body tasked with making sure the transition went smoothly. The handover took place in the early morning hours of July 1, and I was there with then-President Jiang Zemin and other leaders from China to witness the historic event.

The next day, I landed at Bangkok Airport, where another momentous situation was unfolding.

My biggest challenge

For years, Thailand had pegged its currency to the greenback at a rate of around 25 baht to the dollar. A fixed rate meant there was no risk of exchange fluctuations affecting trade, investment, loans and other transactions between Thailand and other countries.

Taking advantage of how easy it was to borrow from foreign entities, Thai companies embarked on a period of breakneck expansion. Charoen Pokphand Group was no exception.

In 1996, however, Thailand's current-account deficit started to skyrocket, and many began to view the baht as overvalued compared to the dollar. The widening deficit eventually caught the attention of speculative investors, and in 1997 they attacked the nation's currency, carrying out an aggressive bout of baht selling. The Thai government sought to defend the currency peg with baht-buying interventions on the currency market, but to no avail.

On July 2, the government abruptly dropped the currency peg and introduced a floating exchange rate system.

The baht immediately plunged against the dollar. Over the ensuing six months, waves of investor selling hit other currencies in the region, sending them into a downward spiral. The Asian currency crisis had arrived.

By January the following year, the Thai currency had weakened to around 50 baht per dollar, losing half its value from before the government's policy change. As a result, Thai companies' foreign currency debt effectively doubled in baht terms.

Unnerved, foreign banks now refused to lend to Asian companies. Worse, overseas lenders sought early repayment of loans, even from our company. Many banks revoked promises for long-term loans with a five-year term. British bank HSBC was one of the few lenders that granted extensions on repayment. Many of Asia's leading companies, suffering from a shortage of cash, collapsed.

To protect CP Group, I made a momentous decision: We would sell stakes in group companies. Supermarket chain Lotus was growing robustly, but we sold a 75% stake to British retailer Tesco. We sold shares in our members-only wholesale store, Siam Makro, to Dutch group SHV, and in China, we let go of shares in a number of companies, including our motorcycle business in Shanghai.

CP Group focused its resources on its three core sectors of agribusiness, communications and retail. As time passed, our exports grew thanks to increased food production, and this helped raise our foreign currency reserves. In the convenience store business, we increased the proportion of franchises -- as opposed to directly run outlets -- to establish a better foothold in the retail sector. And in communications, we made forays into e-money, e-commerce and cable TV, among other areas, broadening our sources of revenue.

The currency crisis was the biggest challenge I had ever faced as head of CP Group, but thanks to an early response, we managed not only to avert bankruptcy but also to make our core operations even stronger.

I have always considered the Chinese word for "crisis" to be quite profound, as it is written with two characters, the first meaning "risk," but the second indicating "chance."

By the mid-2000s, CP Group had fully overcome the negative impacts of the currency crisis and was again headed toward robust growth. In 2013, we bought back Siam Makro from SHV. We want to buy back Lotus (now Tesco Lotus) as well, but we have not yet been able to reach an agreement to do so.

Dhanin Chearavanont is chairman of the Charoen Pokphand Group.

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