GS ASSET MANAGEMENT

Introduction

“Hello……”

“Sawadee1”

“Hello. This Peter Lim2’s from BEB3. May I speak to Mr Kaaampool Adsasahfdkj”

Silence.

“Kaaampoool Adsavlikaii…”

“Ring!Ring!”

“Sawadee”

“Kammpul Adsav….?”

Click.

Not being able to pronounce Thai names and not being able to get hold of the person he needed to speak with were the least of Peter Lim’s problems. He had other more pressing issues that needed to be resolved quickly. A week ago, his boss Hans Schmidt had handed him a disorganized folder with financial information on an asset management company called GS Asset Management (GSAM) in Thailand. He had asked Peter to get in touch with the CFO and the CEO of the company to get more information and prepare a proposal recommending if BEB should buy a 25% stake in the company and how much they should pay for it. The proposal would be sent to the bank's head office in Europe and a decision would be made on the basis of his analysis.

The task would have been relatively easy was it not mid-January 1998. The Asian Financial Crisis that started about 6 months earlier had created and environment of uncertainty, volatility, panic and risk. It appeared to be a good time to buy, the markets had crashed, the Thai Baht was "cheap" and regulators in East Asian countries were opening their once closed or partially opened doors to foreign investors in a bid to save their ailing companies. But what if the markets had not bottomed out? What if BEB bought a stake and in 3 years Thailand decided it did not

1 “Hello” in Thai language2 All names have been changed3 Big European Bank (BEB) - as identity of this bank will not be revealed for purposes of confidentiality.

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like foreign ownership of local assets? What if the Baht depreciated further? What if this was just a "bad" company up for sale? Was there "value" here?

The Asian Crisis

South East Asian countries experienced tremendous growth during the last two decades. This progress has positioned these countries as the example for other emerging markets. Moreover, the world community calls them the “Asian Tigers” for the success they have achieved. After all this, most of South East Asian countries have transformed their economies into a powerhouse of exporting products, most of them in the technology arena. Consequently, they have accomplished great result in terms of reducing poverty, education and growth.

Despite all this incredible remarks, the region suffered one of the most difficult crises in mid 1997. The financial crisis impacted the whole region and all the currencies in the region were devalued as investors started pulling out money from the region. At the beginning, Central Banks handled most of the demand by reducing their level of international currencies in order to maintain the exchange rate, which was pegged to the US dollar and some other currencies. However, they could not sustain this policy and allowed their currencies to fluctuate. This environment generated uncertainty among international investors not only in South East Asia, but also in other emerging markets. In addition, it created a tremendous concern about the real potential of those economies and questioned the prestige obtained in previous years in the investment community. The “Asian Miracle” was over.

In the middle of this storm, Thailand was severely affected (Refer to Exhibit 1 for Thailand’s Economic Indicators after the Crisis). In January 1997, The Central Bank of Thailand started to see the first signs of pressure on the currency as Thailand released poor fiscal and export numbers. In addition, a downturn in the real estate affected many developers as well as the manufacturing sector and both sectors began to default on interest payments as they carried large amount of US dollar debt.

This situation started to affect the financial stability of the banking system and the government announced a plan to buy real estate loans from finance companies (USD 3.9 billion). After that, the government continued applying restrictions in order to defend their currency. However, the level of international reserves diminished - the Bank of Thailand sold forward almost the same amount of the actual reserves. By July 2, the government allowed the Baht to float, losing 15% of its value. In the beginning, people reacted positively; for example, the stock market went up. However, this optimism vanished as the investment community realized that the Bank of Thailand did not have enough reserves to provide any support to the currency. Consequently, the Baht continued to lose ground as did the stock market.

This entire situation created a difficult situation for the banking system and the government, which had to apply for IMF support. The government also created a new organization, Financial Restructuring Authority (FRA) to take care of the financial institutions with liquidity and

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solvency problems. By August, 58 financial institutions were taken over by the FRA. In addition, the Bank of Thailand strengthened the rules governing the financial sector in order to revitalize the trust in the remaining institutions. It is important to mention that the crisis was partially explained by the lack of regulations to restrict banks exposure to highly leveraged companies as well as concentrated lending in any specific industry (e.g. most of the loans were given to the real estate sector leading to a “property bubble”).

IMF Intervention

The IMF’s most important objective is to safeguard the stability of the international monetary system and to help restore confidence in the economies affected by a crisis. The Mexican Crisis taught that the speed in which the help is provided is as important as the help itself. Hence, the Asian countries were given hope not to bankrupt during the crisis thanks to the quick IMF help. Among the objectives to help the most affected Asian countries, the IMF would provide financial resources and spearheading the mobilization of additional funds from other multilateral and bilateral support of these reforms.

Among the new reforms the IMF supported a temporary tightening of the monetary policy to stem exchange rate depreciation, correct the failures and weaknesses of the financial system by implement new regulations and remove failures of the economy such as monopolies and trade barriers. One of the major IMF objectives was to find a balance between the tightness and protection of the social sector safety net. The IMF helped was deeply criticized, since they hurt the whole growth of the economies creating social and political problems.

With regards to the financial sector, the IMF supported the closure of unviable financial institutions, with associated write down of shareholders’ capital, capitalization of viable institutions, close supervision of weak institutions and increased foreign participation in the domestic financial system.

Additional measures taken by the IMF in response to the crises were the acceleration of procedures in terms of approval time and access, the creation of the supplemental Reserve Facility (SRF), increase coordination among other international financial institutions such as the World Bank, Asian development Bank etc. Another important objective was to recover the confidence of the international community by making public letters of intent on the IMF website so that details of the programs were available to all interested parties.

After all, the IMF involvement helped the countries to promote the return of international investment, since they knew that the IMF had enough funds to support the economies as well as they would not let the "tigers" go down again. For this reason, the IMF promoted and demanded from the countries that they implement big structural reforms. Part of the reforms were to change the ownership restrictions that did not allow foreign banks to own more than 25% of a financial institution.

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Thailand

Thailand is unique in Southeast Asia in that the country has never been a dependency of another nation. Another notable difference is that Thai women, unlike women of some other East Asian countries, are active in business affairs, the professions, and the arts.4

Thai, a member of the Tai language family, is the chief language. Four regional dialects are in use. Lao, Chinese, Malay, and Mon-Khmer are also spoken in Thailand. English is taught in secondary schools and colleges and is also used in commerce and government.5

A revolution in 1932 transformed Thailand into a constitutional monarchy after centuries of rule by absolute monarchs, but until recently the country was largely controlled by the military. Although King Phumiphon Adunyadet has little direct power, he exercises considerable influence on political leaders. The nation’s 15th constitution took effect in 1991, although it has since been amended significantly, notably in 1995.6

After elections in July 1988, Chatichai Choonhavan became Prime Minister. A military junta ousted him in February 1991 and installed an interim civilian government. After pro-military parties won the elections of March 1992, demonstrations in Bangkok calling for democratic reforms were violently suppressed. New elections in September resulted in another coalition government, with a veteran politician, Chuan Leekpai, as Prime Minister. In February 1995 the government passed a sweeping package that amended almost all the articles of the 1991 constitution. The pro-democracy changes included lowering the voting age from 20 to 18 years and changing the number of representatives from a fixed number to one based on population. In addition, Thai citizens were guaranteed due process and equal justice under the law.

In May 1995 the Chuan Leekpai government collapsed amid accusations of wrongdoing in a government land reform project. In July 1995, after new elections, the leader of Chart Thai (Thai Nation Party), Banharn Silpa-archa, became Prime Minister. Less than a year into Silpa-archa’s government, accusations emerged of corruption among his appointees, prompting investigation into bribes, abuse of authority, and questionable bank loans. In 1996, after a no confidence debate in parliament, Silpa-archa resigned as Prime Minister. New elections secured a slim victory for the New Aspiration Party (NAP); its leader Chavalit Yongchaiyudh became the next Thai Prime Minister.7 After the crisis, Democrat Party leader Chuan Leekpai was nominated on 9/11/1997 as the next prime minister by Parliament President Wan Mohammad Noor Matha on the strength of support he received from 210 MPs, a clear majority in the House of Representatives.

4"Thailand," Microsoft® Encarta® 98 Encyclopedia. © 1993-1997 Microsoft Corporation.5"Thailand," Microsoft® Encarta® 98 Encyclopedia. © 1993-1997 Microsoft Corporation.6"Thailand," Microsoft® Encarta® 98 Encyclopedia. © 1993-1997 Microsoft Corporation.

7"Thailand," Microsoft® Encarta® 98 Encyclopedia. © 1993-1997 Microsoft Corporation.

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Financial Services Restructuring Authority

As part of the plan to face the crisis, the Thai government established the Financial Services Restructuring Authority (FRA) which main objective was to manage and eventually sell the assets from those institutions that were unable to continue operations. In October 1997, the FRA decided to close 56 from 58 finance companies and started a review of their assets in order to form a package and analyze the best way to bring them to the market.

“We are looking at what assets to bring to the market and how we should package them and how we can organize the bidding process” said Mr. Vicharat Vichit Vadakan secretary general of the FRA

This was a situation that the BEB had to consider given the fact that other stakes of the GSAM may be sold. A 40% stake in GSAM was “frozen” due to the operations of GCN Finance and GF Finance being suspended. This situation could generate two possible outcomes. On one hand, the BEB would be able to compete for this stake of the company if regulations that limited the foreign investment stake were modified. On the other hand, BEB participation in the capital of GSAM would be minor if the government decided to keep the regulations unchanged or if they were unable to purchase that stake. If they failed, a mere 25% stake would not give them control of the company.

Big European Bank

Big European Bank ("BEB") is one of the largest and most global banks in the world. In the early 1990s, they bought European Investment Bank ("EIB") to complement their commercial banking business. BEB hoped to establish itself as universal bank, a "one-stop" shop bank providing an array of financial services. Following the trend of other major global players like Chase Manhattan, BEB was moving from being a commercial bank to a universal bank. BEB was hence growing businesses such as equity underwriting, advisory services, asset management among others.

BEB had a presence in Asia since for over a hundred years though they grew their presence as a commercial bank mostly in the last three decades. In order to grow their fee-based businesses, BEB was hoping to expand it asset management business in Asia by growing internally and by buying local asset management companies. Though BEB was one of Europe's largest asset managers8, their presence in Asia was nominal - with one office based in Singapore and less than 1 billion USD under management. The Asian Financial Crisis presented the perfect opportunity to buy some “good” companies at discounted prices and expand asset management retail business.

BEB was given the chance to exclusively consider buying a 25% stake in GSAM by EIB. Though EIB was owned by BEB, their asset management divisions were run separately. The

8 in terms of assets under management

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management of BEB and EIB decided to rationalize the two businesses and reduce the overlap and unnecessary competition between the two divisions. As a result, BEB would concentrate on the retail aspect of the business and EIB’s asset management division would serve the institutional clients. According to the EIB asset management division head in Singapore, Citicapital, one of the investors in GSAM with a 10% stake in GSAM had offered to pay 1 million USD for their 25% stake. However, before EIB offered its 25% in GSAM to other potential buyers, they gave BEB’s asset management division based in Singapore a chance to purchase the stake for 1 million USD.

The Asset Management Industry in Thailand9

In most Asian countries, the asset management business is still in its infancy. A common feature before the crisis was that very few countries in Asia allowed majority or 100% ownership by foreigners of asset management businesses. Hence, foreigners have small stakes and hence influence in this industry. In the early 1990s as the Asian population became wealthier it was perceived that this business was set to grow dramatically.

Thailand experienced rapid growth in its asset management business between 1992 and 1995. Before 1992, there was one state-owned company that offered investment funds in Thailand. In 1992, the Bank of Thailand decided to grow the industry and awarded several licenses. The licenses stipulated that a Thai commercial bank had to be the senior partner, but they also required international expertise as a requirement to get the license.

By April 1992, 8 licenses had been awarded and that resulted in the phenomenal growth that resulted in the funds managed to rise from 1.5 billion USD to 8 billion USD in two years. Over that 2-year period, the number of funds rose from 12 to more than 70. See Exhibit 2 on the asset management business in Thailand.

A large part of the funds offered in Thailand have been close ended10. Though towards the end of 1994, some companies offered a few opened-ended funds. By 1996, the Securities and Exchange Commission (SEC) of Thailand allowed insurance companies, and not just commercial banks to distribute mutual funds. They continued to increase the degree of foreign participation, as the industry required foreign expertise in technology and investment management to continue to grow.

However, according to current Thai law, a foreign stake in shareholding cannot exceed 25% of capital of the fund management company which has been established for less than 5 years. GSAM was established more than 5 years ago, so the foreign stake can be increased to 49%. However, major reconstruction is expected in the financial sector and the government is expected

9 Source: Marketing Unit Trusts and Mutual Funds in Asia: Regional Overview by Stewart Aldcroft, Templeton Franklin Investment Services (Asia) Ltd, Hong Kong10 Close ended funds differ from open-ended funds because the number of units in issue will varyfrom day to day. In a close ended fund the investor, if he's a shareholder, simply sells through the stock market to another buyer, leaving the underlying fund unaffected.

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to lift the foreign ownership limits for banks and financial companies. Foreign shareholders will be allowed to invest in financial companies and have ownership of more than fifty percent for up to ten years. After the ten years an increase of fund must be sold out to Thai shareholders until the foreign shareholders are reduced to less than 50%11

In spite of new companies being formed and the business growing, at the end of 1996, against a backdrop of a worsening economic climate, the outlook for owners of Thai-equity funds was regarded as bleak in the coming year.

That outlook was probably too “optimistic” considering what happened in July 1997. The asset management industry was critically affected by the financial crisis. Panic redemptions were rampant for open ended funds due to poor economic fundamentals, the market crash and poor liquidity. Several fixed income funds were liquidated. Only six new funds were launched from the beginning of the third quarter of the year till September 1997, showing only a 6.89% success rate based on projected size. The market for new products had “disappeared”. Exhibit 3 shows the Thai mutual fund industry during the economic crisis and an article from The Nation, a local newspaper. The marketing director of GSAM admitted in local Thai newspaper that fund management was becoming more difficult.

GS Asset Management

Formed in March 1992, as part of the Bank of Thailand’s issuance of new licenses in the asset management business – GSAM had prominent local and foreign partners. It had registered and fully paid up capital of 100 million THB.

Foreign banks and asset managers were eager to invest in Thailand as the economy was experiencing high growth and the asset management industry was set to grow. However, foreign banks like Citibank (investing via its venture capital arm, Citicapital). The other partners in the venture were the Government Savings Bank (a prominent local Thai commercial bank), General Finance and Securities and GCN Finance Co. (both finance companies). Refer to Exhibit 4 for the shareholder of GSAM and their stakes in the company.

In 1997 GSAM was the fourth largest (with a market share of 12.5%12) Asset Management company13 in Thailand managing assets worth 12,000 million THB (USD 300 million14) with 75 employees (Exhibit 5 is a table on the breakdown of employees). In 1997, GSAM had a 198,885 client base, which was divided into 77.4% individual investors and 22.6% institutional investors. Exhibit 6 illustrates the breakdown of the types and names of funds offered by GSAM and their sizes.

11 Press release issued by the Office of the Government’s Spokesman at Government House on October 14, 199712 as at October 10, 199713 in terms of assets under management14 as at November, 10th, 1997. 1 USD = 40 THB

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Prior to the crisis, GSAM had experienced a fairly rapid growth in its business. The shareholders received handsome dividends and the company’s net income and net worth grew steadily. Exhibit 7 shows GSAM past performance from incorporation to 1996.In June of 1997, General Finance and Securities Plc. (GF) and GCN Finance Plc. (GCN), had their operations suspended by the Ministry of Finance and Bank of Thailand. The assets and operations of these companies were frozen. It was uncertain how the government would deal with these finance companies which were among the 58 finance companies shut down by the government. These two finance companies were not only shareholders but also owed GSAM substantial sums of money that GSAM had lent to them prior to the crisis. GF owed 46.7 million THB and GCN owed 46.4 million THB.Exhibit 8 tabulates each finance companies debt obligations and ownership.

With the operations suspended, there was substantial uncertainty as what would have to the debt owed and the shareholding of the two finance companies. It is possible that GSAM may have to write off the entire sums owed to it as loans from financial institutions and deposits from affiliates were left unprotected even thought public deposits were transferred to healthy institutions for full coverage. GF may be wound up and merged with Krung Thai Thanakit. GCN is inviting the largest Taiwanese bank to become its major shareholder.

GSAM’s Strategy in Face of the Crisis

As the asset management industry collapsed, GSAM faced several difficulties. Exhibits 9 and 10 illustrate the effect of the crisis on the business. The company faced a grim future and had to revise its strategy and operations. Four fixed income funds had to be liquidated.

The management planned to increase revenues from business areas having least impact from the present crisis such as private funds, money market funds and providing registrar services for owned funds. A cost cutting program as in Exhibit 11 was going to implemented to tide through the crisis. In addition, the management hoped to increase staff productivity and efficiency.

GSAM’s management also had several discussions on separate events with GF, GCN and their legal advisors. Methods that they came up with to get their deposits settled, ranged from a simple asset/liability write to litigation. However, the government had yet to reveal any plans on how it planned to deal with the suspended finance companies. GCN has previously settled via a lengthy procedure, the sum of 1.9 million THB through the asset/liability offset method.

In accordance to conservative accounting practices, full provision had to be made for the 93.1 million THB owed by the two finance companies. That would result in a huge loss of 61.96 THB for financial year 1997.

GSAM presented its shareholders with business forecasts for the next years. (Exhibit 12). Their projections took into account that market conditions would prohibit any new launches and that close ended funds would transform into open-end funds upon their maturity dates. Marketing

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efforts would be focussed on drawing fresh money into those newly transformed open-ended funds. GSAM was also hoping to launch some government guaranteed and government bond funds as the Thai government was expected to start issuing fresh government bonds. See Exhibit 13, New Product Launch by GSAM from The Nation, 1/20/98.With regards to fixed income funds no new launches can be expected to take place. New launches are expected to occur only when confidence returns to the financial markets. GSAM expects money market funds to make their debut in the second half of 1998 and the company expects substantial growth in these products. They also expect to grow the private fund business and have it in full swing by second half 1998. GSAM as also assumed that taking over all registrar operations, including the registrar activities of existing closed-end funds formerly serviced by General Finance will add to revenue growth in the next 5 years.

Management expected to freeze the number of staff and limit the salary growth at 5% with no bonus payments. In addition, no capital expenditures will be made till 2000.

Peter’s Dilemma

GSAM was obviously looking for a savior to tide it through the rough times it faced ahead. This was Peter’s first job after graduating from the local university in Singapore a few months back and he wanted to make a good impression but he was at a loss as to what to recommend. He had learnt several company valuation models at school but how would one make the necessary projections in a time of crisis? The projections he made were very different from the ones provided by GSAM. What discount rate would he use? What exchange rate?

He knew from the press and articles in business publications that M&A activity in Asia was set to grow as rules on foreign ownership were relaxed and foreign investors returned looking for “value”. However, there was much uncertainty as to when the rules would be relaxed and the Thai government had yet to reveal how the FRA would deal with the suspended Thai companies that had a shareholding in GSAM. If they ended with only a 25% stake, they would not have control – could they trust the management of GSAM?

Maybe, BEB should wait – let the dust settle and then decide whether to purchase or not. What about Citicapital’s USD 1 million offer? ? Did they know something he did not? Was there actually an offer from Citicapital? Were there other interested parties? Was it strategic to buy this particular company or was it better to buy some other asset management company in Thailand or elsewhere?

Peter sighed. There were too many variables, too many uncertainties. The information he had was sketchy, disorganized and changed on a daily basis. He had to start somewhere. He decided to call the Chief Financial Officer of GSAM to discuss their projections. But before he did that he would practice saying his name out loud 5 times……”Tart---ool Tho-ngtha-mmwqwg…”. Tart---ool Tho-ngfdstha-yewg …”……….

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Exhibit 1: Thailand’s Economic Indicators after the Crisis

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THAILAND KEY ECONOMIC INDICATORS

1997e 1998 f 1999 f

GDP at Current Prices (Billion Baht) 4,775 4,779 4,797

Real GDP Growth (%) -0.40% -8.50% -0.40%

Consumption (%) -1.50% -8.30% 0.10% - Private Sector -0.90% -8.60% -0.80% - Public Sector -5.60% -6.40% 6.30%

Investment (%) -14.50% -29.20% -7.20% - Private Sector -21.80% -26.00% -4.00% - Public Sector 8.40% -36.40% -15.80%Inflation (%) - Consumer Price Index 5.60% 8.10% 0.80% - Wholesale Price Index 4.00% 13.80% -1.50%

Baht : US Dollar (Average) 31.4 41.4 37

International Trade (Billion Baht)Exports 1,789.70 2,178.10 1,966.80 % Change -29.80% -21.70% -9.70% USD Millions 56,721 52,818 53,293 % Change -3.80% -6.90% -0.90%Imports 1,874.50 1,696.50 1,506.50 % Change -4.30% -9.50% -11.20% USD Millions 61,348.00 40,809.00 40,482.00 % Change -13.40% -33.50% -0.80%Trade Balance -84.9 481.6 460.3 As % of GDP -1.80% -10.10% -9.60%Current Account Balance -40.3 535.3 505.6 As % of GDP -0.80% -11.20% -10.50%Balance of Payments -299.2 50.6 -Official Reserves (Billion US$) 27 29.5 -

Source: Bangkok Bank Data Department

Exhibit 2: Thailand’s Asset Management Industry(as at 31 December 1995)

Exhibit 3: Thai Mutual Fund Industry during the Economic Crisis

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No. of Companies No. of Funds No. of Investors Size of Funds

8

120

800,000

16 bn USD

in Million Bhat

Type Jun-96 Peak Sept 1996 Dec-96 Mar-97 Jul-97Equity Fund 144,929.96 122,465.37 101,688.78 88,397.10 84,216.00 Bond fund 75,515.74 92,192.67 86,297.33 87,921.87 34,380.00 Balanced Funds 7,193.58 7,149.44 6,833.00 6,275.14 5,758.10 Other Funds 14,766.80 23,979.48 22,217.47 17,428.66 12,230.44

Total 242,406.08 245,786.96 217,036.58 200,022.77 136,584.54 Growth Rate 2.67% -11.70% -7.84% -31.72%

Sept - Dec 1996: Economic Slump became more evidentStubborn current account deficitNo improvement in exportsRumours on Bhat devaulationStock market down 23.44%Interest rates soars

3-Mar-97 Ten finance companies proclaimed having financial difficulties

27-Jun-97 Operations of 16 finance companies suspended

2-Jul-97 Baht currency float

5-Aug-97 Operations of another 42 companies suspende

Present Granted USD 16.6 million of standby loans co-ordinated by IMFStock market plummeted 51% since early September

Exhibit 3: Thai Mutual Fund Industry during the Economic Crisis (continued)

Date: 4/8/97 Mutual fund industry reeling from volatility

BY KETKAEW NAREEDET

THE mutual fund industry witnessed a negative spillover from the volatile money and equity markets, ending the first quarter with a loss of Bt13 billion, or 12.09 per cent of the total value of all open-ended funds, compared to the same period a year earlier. In percentage terms, One Investment Management Co Ltd suffered the sharpest loss, with the value of its open-ended funds dropping Bt4.7

billion, or 40 per cent.

Among eight mutual fund companies, only Bua Luang Asset Management Co Ltd enjoyed a rise in the value of assets under its management. However, Bua Luang's net asset value (NAV) at the end of the first quarter recorded a meagre drop of 1.46 per cent, or Bt576 million.

Before the end of last year, fund managers said that would slow the launch of new funds, and they would instead concentrate on enlarging existing funds.

In addition, they would focus on fixed-income funds because of the sharp plunge in the stock market as a result of macro-economic problems such as the current-account deficit. Last year, the stock market lost 35 per cent of its value, compared to a year earlier.

Nevertheless, most fund companies failed to achieve their goals due to the economic sluggishness, discouraging investors from channelling investments into low-yielding mutual funds. Having launched three funds since the beginning of this year, SCB Asset Management Co Ltd raised only Bt800 million.

At the end of the first quarter, the NAV of open-ended funds reached a total of Bt97.46 billion compared to Bt110.86 billion in the same period a year earlier.

Of eight fund companies, One Investment recorded a NAV of Bt7 billion. GS Asset Management Co Ltd posted the second worst drop, down 35.35 per cent to Bt1.4 billion; Thai Capital Management Co Ltd fell 32.40 per cent to Bt6.5 billion; Thai Asia Mutual Fund Co Ltd dropped 26.39 per cent to Bt7 billion; Mutual Fund Plc fell 16.54 per cent to Bt2.5 billion; and SCB Asset fell 0.1 per cent to Bt21.2 billion.

Vorawan Taraphoom, managing director of Thai Asia, said 1997 is not a golden year for fixed-income funds, unlike the original expectations of fund managers. She attributed the dissatisfactory results to the liquidity crunch in the money market.

Investors consequently lost confidence in the investments, fearing mutual funds could face financial problems from their investments and deposits with financial institutions in trouble. Redemptions caused a drop in NAVs.

She admitted that the risks of fixed-income funds are on the rise in terms of investments in promissory notes, bills of exchange and debentures because the repayment ability of finance companies which guarantee or issue the instruments is shaky.

''Investment decisions need to be more prudent. Under these conditions, we cannot make long-term investment plans. "We're uncertain if we will be able to launch new funds this year while the old funds are reaching their maturities."

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''Although we can maintain our existing clients, we believe we should not run against the tide by slowing investments for a while," she said.

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Exhibit 4: GSAM’s shareholders

SHAREHOLDER STAKEGovernment Savings Bank – local commercial bank

25%

EIB Asset Management –European investment bank

25%

General Finance and Securities Plc. – local finance company

20%

GCN Finance Plc. – local finance company

20%

Citicapital Co. Ltd. – American bank’s venture capital arm

10%

Exhibit 5: GSAM’s Employees

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Area Number of employees

Executive 1Business Development & Marketing 7Fund management Department 15Fund operations Department 11Finance & Administrative Department 19IT Department 8Customer Service & Registrar Department 9Private fund unit 3Compliance unit 2Total 75

Exhibit 6: Breakdown of Fund Types

Private Fund Products

15

Mutual Fund Products

2 Balanced Funds13%, 1,746 mio THB

3 Provincial Development Capital Funds

9%, 1,278 mio THB

1 Stock Market Support Fund

1%, 131 mio THB

3 Fixed Income Funds3%, 410 mio THB

9 Equity Funds74%

9,889 mio THB

No. of clients 11 Money Market Fund 45 mio THB1 Equity Fund 7 mio THB

Exhibit 6: Breakdown of Fund Types (continued)

No. Launched Name of FundMaturity

(yrs) / Type

Volume as at Aug.29,1997 (THB

mio.)

Date of Maturity

Convert to Open-ended?

1 Aug. 1992Om-Sin Perm Poon sub Fund

(OSP)5 Equity

1,255.71 Aug 16, 1997 Yes

2 Nov. 1992Om-Sin Sathien Sub fund

(OSS)7 Balanced 1,353.89 Nov. 1998

3 Sept. 1993 Om-Sin Udom Sub Fund (OSU 5 Equity 1,83283 Sept. 19984 Oct. 1993 Om-Sin Udom Sub II (OSUII) 5 Equity 1,145.80 Oct. 1998

5 Jan. 1994Om-Sin Charoen Sub Fund

(OSC)5 Equity 2,288.72 Jan. 1999

6 July 1994Om-Sin Kasem Sub I fund

(OSK1)5 Equity 405.14 July 1999

7 Dec. 1994 Sin Paitoon Open End (SPT)Open-ended Equity

191.93

Open-ended since Jan 2,

1996

8 Dec. 1994Om-Sin Ammuay Sub Fund

(OSA)6 Equity 1,877.03 Dec. 2000

9 Sept. 1995Om-Sin Piboon Sub Fund

(OSPI)5 Balanced 320.60 Sept. 2000 Yes

10 Sept. 1995Om-Sin pai-Boon sub Fund

(OSPA)5 Equity 466.38 Sept. 2000

11 Mar. 1995Om-Sin Raum Pattana 2

(OSR2)

Open- Ended 238.82

12 Sept. 1996Karchanapat Open-ended

Equity fund

Open- EndedEquity

33.71

13 April 1996Om-Sin Poonpol Fixed Income

Fund (OSPP)

7Fixed

Income267.05 April 2003

14 April 1996Om-Sin Poontawee Fixed Income Open-end (OSPT)

Open-endedFixed

Income

97.83

15 July 1996Sin Thana Bor-dee Fixed

Income Fund (STB)

Open-endedFixed

Income

89.98

16 Jan. 1995Om- Sin Provincial

Development Capital Fund (OSPDC1)

10 Equity 315.23 Jan. 2005

17 June 1995Om-Sin Provincial

Development Fund II (OSPDC2)

10 Equity275.05

June 2005

18 Oct. 1995Om-Sin Provincial

Development Capital Fund III (OSPDC3)

10 Equity 639.16 Oct. 2005

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Exhibit 7: GSAM’s Historical Performance (1992-1996)

1996 1995 1994 1993 1992(Mar - Dec)

IncomeMgmt Fee. 275,672 267,660 208,550 66,464 7,427 Other Service Income 403 154 65,060 65,021 33,627 Interest Income 19,350 18,717 15,278 13,500 8,345 Other Income 1,547 324

Total 296,972 286,855 288,888 144,985 49,399

Administrative Expenses 127,913 167,893 166,675 73,869 20,762

Net Profit/(Loss) 169,059 118,962 122,213 71,116 28,637 Corporate Tax 51,021 35,688 36,664 21,499 8,601

Net Profit/(Loss) after tax 118,038 83,274 85,549 49,617 20,036

Earnings per Share 11.80 8.33 8.55 4.96 2.00

Changes in the Stockholder's Equity

Ordinary Share Captial 100,000 100,000 100,000 100,000 100,000

Unappropriated Retained EarningsBeginning Balance 100,716 101,719 69,653 20,036 - Additions 118,038 83,274 85,549 49,617 20,036 Deductions (192,240) (84,277) (53,483)Ending Balance 26,514 100,716 101,719 69,653 20,036

Legal Reserve 10,000 7,760 3,483 - -

Total Shareholder's Equity 136,514 208,476 205,202 169,653 120,036

17

Exhibit 7: GSAM’s Historical Performance (1992-1996) (continued)

Exhibit 8: GF and GCN’s Shareholding and Debt Obligations to GSAM

18

1992 1993 1994 1995 1996 1997(Mar-Dec) (September)

Total Assets Million Baht 140.432 212.444 276,047.000 288.298 264.201 107.413 Total Liabilities Million Baht 20.396 42.790 70.844 79.822 77.686 17.743 Net Worth Million Baht 120.036 169.654 205.203 208.476 186.515 89.670

Total Revenue Million Baht 49.399 144.986 288.888 286.855 296.973 145.280 Total Operating Expenses Million Baht 20.762 73.869 166.675 167.893 127.913 79.201 Reserve for Doubtful A/C * Million Baht 93.100 Net Profit (Loss) After Tax Million Baht 20 50 86 83 118 (46.845)

Earnings Per Share Baht 2 5 9 8 12 (4.685) Dividend Per Share Baht 5.000 8.000 8.000 11.000 Book Value Per Share Baht 12.004 16.965 20.520 20.848 18.652 8.967

Particulars

Ownership GF GCN(Projected Dec 31, 1997)

Shareholding 20 mio THB 20 mio THBRetained Earnings 18.22 mio THB 18.22 mio THB

Total 38.22 mio THB 38.22 mio THB

Debt Obligations(as at Sept 2, 1997)

Promissory Notes:-

Already Due 7 mio THB 33.9 mio THBComing due Sept 1997 39.7 mio THB 12.5 mio THB

Total 46.7 mio THB 46.6 mio THB

Exhibit 9: GSAM’s Business during the Economic Crisis

Exhibit 10: GSAM’s profitability and fund size

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Jun-96 Sep-96 Dec-96 Mar-97 Jul-97Equity Fund 19,748.66 16,277.52 13,297.60 11,749.27 11,460.78 Bond Fund 1,143.38 1,313.29 1,692.76 1,530.45 493.60 Balanced Fund 3,013.38 2,753.67 2,594.84 2,442.26 2,073.65 Other Funds 2,452.27 2,137.07 1,968.57 1,816.38 1,670.35 Total GSAM 26,087.69 22,481.55 19,553.77 17,538.36 15,698.38

Industry 239,406.08 245,786.96 217,036.58 200,022.77 136,584.54 Growth rate GSAM -13.82% -13.02% -10.31% -10.49%

Industry 2.67% -11.70% -7.84% -31.72%In Million Baht

Type

9 months 7 months1992 1993 1994 1995 1996 1997

Industry - Fund size (Annual Average) 44,460.71 131,527.38 172,381.76 196,834.21 230,347.11 168,303.66 GSAM -Fund size (Annual Average) 3,389.63 8,604.30 20,914.09 24,728.41 23,488.92 15,936.11 GSAM -Average Market Share 7.62% 6.54% 12.13% 12.56% 10.20% 9.47%GSAM -Net Profit 20.04 49.62 85.55 83.27 118.04 38.11 GSAM -Net Profit / Employee 1.18 1.38 1.78 1.34 1.48 0.51

In Million Baht

Particulars

Exhibit 11: COST CUTTING PROGRAMS

Personnel Expenses (24.29% of Total revenue)Stage I

No new recruitment Transfer / reshuffle if necessary No overtime working unless approved by the Management No out-house-training Reduce welfare and subsidized monies Reduce Company’s contribution to staff provident fund

Stage II No bonus payment No salary increase No contribution to staff provident fund

Stage III Salary cut Director’s fee cut Staff welfare cut

Stage IV Layoffs

Office Expenses & Depreciation (18.26% of Total Revenue) Control on electricity supply Control on telephone / mobile phone bills No new investments in fixed assets or office equipment unless deemed

necessary by the Management Proper maintenance of fixed assets and office equipment for longer usage

Other Expenses Reduce marketing expenses and business entertainment Control on stationery and supplies Control on the usage of copy machine and fax

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Exhibit 12: GSAM’s Business Forecast from 1998-2002

21

Forecasted1997 1998 1999 2000 2001 2002

IncomeMgmt Fee. 172,011 148,632 145,116 153,888 142,797 153,453 Registrar Fee 3,082 16,787 11,272 9,325 5,692 6,179 Interest and Other* Income 12,394 4,232 5,161 7,294 7,334 8,121

Total 187,487 169,651 161,549 170,507 155,823 167,753

ExpensesPersonnel 45,849 45,630 56,350 57,396 57,423 57,558 Marketing 1,882 9,445 6,785 6,490 4,470 4,490 Travel & Acc 500 600 600 600 600 600 Stationary 1,584 2,089 2,154 2,223 2,298 2,375 Rental & Utilities 21,796 23,099 22,831 22,065 21,537 21,997 Insurance Prem. 12,958 18,936 12,544 9,662 839 839 Selling/Redem Fees 1,653 973 2,996 5,956 6,390 5,532 Other fees 2,080 2,205 2,221 2,240 2,260 2,282 Depn/Amort 14,296 14,486 14,356 12,941 10,183 7,153 Bank Charges 139 42 42 42 42 42 Fixed Asset Writen Off 36 - - - - -

Total Expenses 102,773 117,505 120,879 119,615 106,042 102,868

Net Profit/(Loss) 84,714 52,146 40,670 50,892 49,781 64,885 Corporate Tax 25,414 15,644 12,201 15,268 14,934 19,465

Net Profit/(Loss) after tax 59,300 36,502 28,469 35,624 34,847 45,419

Projected Equity Statements ('000 bhat)Full provision set aside against deposits with GF & GCN Finance in 1997

Share Captial 100,000 100,000 100,000 100,000 100,000 100,000

Retained EarningsLegal Reserve 10,000 10,000 10,000 10,000 10,000 10,000 Allowance for Doubtful A/c (93,000) (93,000) (93,000) (93,000) (93,000) (93,000) R/E-Beginning 26,515 85,815 122,317 150,786 186,410 221,257 Net Profit for Year 59,300 36,502 28,469 35,624 34,847 45,419 Unapp R/E 85,815 122,317 150,786 186,410 221,257 266,676

Total Equity at Year End 102,815 139,317 167,786 203,410 238,257 283,676

* Other Income: rebates on 1996 insurance premium, reversal of company's contribution to Staff ProvidentFund and Service Fees received from founds--extraordinary in nature

Exhibit 13: New Product Launch by GSAM from The Nation, 1/20/98

GSAM to launch new fund

TO support the ''Thai-help-Thai'' campaign, GS Asset Management Co (GSAM) plans to launch a new fund for the public which will be invested mainly in government bonds and state enterprise bonds backed by the government.

The company said the Sin Thana Sab open-ended fund will be launched on Jan 27 and 28.

Under the terms and conditions, a minimum purchase of Bt1 million will be required for the first subscription. Transactions will be able to be conducted on a daily basis, while redemptions will be permitted once a week. Unit holders will enjoy tax-free gains from their investments.

GSAM president ML Pakakaew Boonliang said the launch is in line with the government's policy of promoting savings.

''Investors will be able to help the country weather the difficult times as 30 to 50 per cent of the fund's net asset value will be invested in government and state enterprises bonds,'' she said.

Government and state enterprise bonds are considered the most suitable investments with competitive returns as they are now yielding 14 per cent annually with semi-annual interest paymEnts and two to five years maturity.

However, the acquisition of such bonds requires a lump sum of money and may mean going through bidding procedures, which prevents ordinary individual investors accessing them.

Exhibits14: Forward Interest Rate for Thailand and United States.

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Time US Dollar Baht

1-year 6.75% 5.06%

2-year 7.15% 5.94%

3-year 7.31% 6.89%

4-year 7.35% 7.55%

5-year 7.41% 7.94%