Taipei Times: What is Lone Star's view of the government's progress in financial reforms and its efforts in cleaning up non-performing loans (NPLs)?
Jay McLennan: We saw Taiwan as a great opportunity in this region because [the government] took a very proactive role and tried to solve the NPL problem. They did a really smart thing, that is, they looked to other countries that had NPL problems in the past and still have the problem, and took what I consider to be the best practices from those different countries to put a framework in place to reduce the NPL ratio.
They looked to [South] Korea, the US, maybe a little bit to Japan, at least from the framework standpoint. [South] Korea is probably one of the best models -- a framework which attracts foreign capital to reduce the NPL ratio.
Taiwan also adopted the right laws, such as the Financial Institutions Merger Law (金融機構合併法), part of which allowed the formation of asset-management companies (AMCs) and incentivized foreign investors to invest in Taiwan. It also incentivized banks to sell their NPLs because they can write off their losses over a period of time. And it got the market moving, showing the rest of the world that Taiwan was ready to face its NPL problems head on.
Admitting the problem is probably the biggest issue for most countries, and Taiwan just came right out and said we have this problem and we'll solve it.
TT: When did you start viewing Taiwan as a potential market for AMCs?
McLennan: We've been looking here for quite some time. I personally began coming here three years ago and have lived here over 20 months. When you look around the region, Japan and [South] Korea have been active in dealing with their issues for a long while, China has huge problems, and their market will begin to move soon, and you have Taiwan which is actively selling. Southeast Asian countries are either not selling proactively or straightforward laws are not in place. Or frankly, they are just not as attractive as Taiwan, which is a AA-rated country with a very sophisticated economy and high income levels.
TT: Other AMCs complained that the yet-to-be-computerized household registration system adds difficulty to their foreclosure of NPLs. What is your opinion?
McLennan: While the framework is in place, there's always the challenge of putting things into practice. The laws do work, it just takes longer than anticipated. A lot of the registration and court processes for foreclosure have taken longer because the courts are overloaded and the laws are oftentimes interpreted differently by different courts. The Taiwan Financial Asset Service Corp (TFASC, 台灣金服), which was set up to help courts, has been slow moving, but they are gaining ground. The timing of the process will get better and I have faith.
TT: Some look at your role in the NPL-cleanup process very positively, yet others regard AMCs negatively, as vulture funds that snap up profits and run. Is this a fair criticism?
McLennan: No, first of all, we don't snap up profits and we don't run. When Lone Star commits to a country, we're in that country for a long time. We've invested billions of US dollars, about 80 percent of our money, in Asia and so we're not going anywhere. We've been in Japan and [South] Korea for a very long time, and we plan to stay in Taiwan for a very long time.
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