Capital Services Group Launches New Thai AMC

Capital Advisory Services, the Bangkok based subsidiary of Capital Services Group, has launched its first Asset Management Company ("AMC") in Thailand. Called Raksana Siam AMC, the formal license for the new entity was issued by the Bank of Thailand on April 3rd, 2013.

The launch of Raksana Siam AMC opens up new opportunities for Capital Services Group to either invest individually or co-invest with capital partners in distressed debt in Thailand. Using an AMC vehicle has a number of significant benefits for investors which include:

• The ability to transfer mortgages and enforce security against debtors
• Ability to accept assets from debtors (deed in lieu) or credit bid at auctions conducted by execution offices
• Savings in transfer fees when transferring assets from financial institutions
• Ability to grant additional loans or engage in any other activity relating to managing or rehabilitating debtors
• Ability to borrow or issue debt instruments both onshore and offshore in order to finance the purchase of impaired assets

Andrew Hughes, Regional COO of Capital Services Group commented, "This is an historic event for the Capital Services Group franchise in Thailand. Since we first opened our doors in the kingdom 12 years ago we have only focused on loan servicing and real estate asset management. We now have the opportunity to make principal investments ourselves and share in the risks alongside our clients. This comes at a particularly fortuitous time when investors are increasingly attracted to the expanding markets and rising middle class in fast developing Southeast Asian economies like Thailand."

Capital Advisory Services has been Southeast successfully undertaking loan servicing and real estate asset management in Thailand since 2001 on behalf of foreign investors. The Bangkok office is also the ASEAN regional hub for Capital Services Group. The impending launch of the ASEAN Economic Community ("AEC") in 2015 is heightening interest in the region. AEC will create a single trade, capital and investment block encompassing over 600 million in one of the fastest growing parts of the world. AEC, together with India, will contain over 25% of the planet's population, which is close to one and a half times the size of China. What is more, a number of jurisdictions in the AEC are already well established and sophisticated investment destinations that not only welcome outside capital but have a well established tradition of foreign investors repatriating higher returns than they can achieve in mature home markets.

In addition to operating in Thailand, Capital Services Group is also currently undertaking loan servicing, diligence and advisory services in other ASEAN jurisdictions including Malaysia, the Philippines, Singapore and Vietnam.

Aligning Distressed Investors and Special Servicers

History has proven many times that buying distressed assets can be one of the most effective investment strategies. Past masters of this approach are the investment banks and specialist fund vehicles, where experience and track record has proved to be the critical factor in achieving the highest, and some times, spectacular returns. The core proficiencies that separate the stand-out winners are firstly, buying at the right price, secondly, knowing how to further increase investment in order to multiply returns, and finally, knowing when exactly is the best time to cash out and exit. Alongside the investor, an effective special servicing operation to harvest collections is essential. In parallel to the investor, the experience and track record of the servicer are also critical, but it is surprising how often investors lose sight of this, particularly in the excitement following a market crash. Investors and special servicers must not only be financially aligned, but must BOTH also have a successful, proven track record in making consistent, high returns from distressed loans in order to be sure of optimizing investment opportunities.

Acquiring distressed assets at their most profitable level occurs in a market where there is a likelihood of future growth. Buying assets that have just experienced a dramatic fall in value is logical, but this strategy only works well if there is some certainty that the market will rebound. This is the problem now facing investors in the Eurozone. There are queues of eager investors picking off potential distressed asset targets, but even if you believe you are buying at the bottom of the market, what happens if the market slides again? There is a very high, real risk that if asset values decline significantly further, unless the investor gets out quickly, the investment will turn sour and make a loss.

The situation in Europe is compounded by a shortage of special servicers with sufficient experience and skills sets throughout the continent. Given the region has yet to rebound, and indeed appears to be worsening, there is no evidence to suggest that either the servicers or the investors have got things right. Indeed, a worrying trend that has surfaced in 2013 is the sale of a number of European special servicing entities. It might be argued that the owners of the servicing entities are just selling out when demand is strongest, but doing this ahead of the party starting, before they can demonstrate the success of their financial performance, throws up a big question mark. Viewed from Asia, European servicing entities appear to have good local market knowledge but limited experience and track record in optimizing distressed loan monetization. As far as investors are concerned, local servicers selling out this early in proceedings is not a good signal, and one that should be making them nervous. It may even suggest that the servicers know of something off-putting that the investors don't!

At the other end of the scale from Europe, South and Southeast Asia currently boasts a number of more mature markets such as Singapore, Malaysia and Thailand that continue to maintain robust growth. Amongst these are less developed markets like India and Vietnam where markets are clearly correcting, which offer distressed investors a Europe type situation where prices have crashed, but with a much stronger rebound and growth story. Alongside the less mature markets there are completely undeveloped markets like Cambodia, Laos and Myanmar which offer investors terrific future growth potential.

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