Thailand - The Wheels of Justice Turn Slowly

September 27, 2022 Edward Dever

Rakesh Saxena, 70, was recently sentenced to 335 years in jail (yes, 335 years) over three lawsuits stemming from the Bangkok Bank of Commerce embezzlement scandal in the 1990s. He will serve only 20 years behind bars, the maximum term under the Thai Penal Code.

Bangkok Bank of Commerce was one of the first banks to fall ahead of the Asian Economic Crisis. Between 1993 and 1994, BBC spent over Baht 36 billion on business takeovers and leveraged buyouts. BBC also granted loans with insufficient or overpriced collateral to companies controlled by Saxena, BBC executives and associates, including politicians.

When the music stopped, it was clear that BBC was hopelessly insolvent and the Bank of Thailand took control. It was then liquidated in 1998.

Krirkkiat Jalichandra, the disgraced BBC president, was sentenced to 20 years in jail and fined Baht 3.1 billion. He died in October 2012 while serving his prison sentence.

Saxena fought extradition from Canada between 1997 and 2009. He then fought a legal battle in Thailand that ended this month with a final Supreme Court ruling.

The shenanigans at BBC mostly predated my time in Thailand. However, in my early days, I did come across it on the periphery of several transactions. One treated BBC with caution as rumours circulated that all was not well within the bank.

Rakesh Saxena and the Thai banking scandal that triggered Asia’s financial crisis

September 2022

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

A Fool and His Money Are Soon Parted

November 16, 2021 Edward Dever

As the Australian Government's Scams Awareness Week closes, it is worth highlighting perhaps one of the oddest scams of recent times.

In Texas last month, the self-proclaimed ‘Money Doctor’, the 80 year-old William Gallagher was sentenced to three life prison terms in Tarrant County for defrauding investors. This is in addition to a 25 year term for similar offences in Dallas County.

The Money Doctor bought time on a Christian radio station where he gave financial advice with a Christian theme, signing off his broadcasts with ‘see you in Church on Sunday’.

One of the most bizarre investments he promoted through his Ponzi scheme was a plan to use a satellite via a company called Hoverlink to shine holographic advertising down to Earth. Over time, Hoverlink morphed from a hoverboard rink to a cancer-curing pharmaceutical to law enforcement body armour before going galactic with its satellite plans.

It was all a scam. Yet people piled into the schemes, all neatly packaged in religious wrapping.

It reminds me of the time I gently nudged ASIC to force a Qld company to issue a supplementary prospectus to protect investors' interests.

A former sportsman who moved into property development was looking to swap his high levels of bank debt for income securities, issued mainly to retirees.

Investor presentations were organised in regional areas, including in church halls, offering returns around 12% p.a.

In my view, this was an attempt to replace sophisticated Big 4-type lenders with unsophisticated investors. A couple of phone calls to real estate agents quickly uncovered that the sales data in the prospectus was somewhat misleading.

The ex-sportsman was on a generous salary and car package and the company had licensed the use of his name at significant annual cost. Given how the company had performed to that time, it was arguable that killing off all these costs and installing a new CEO may have been a better option.

In the end, ASIC forced the issue of a supplementary prospectus and, given the delay, only a paltry sum was raised.

Unfortunately, the company collapsed a number of years later leaving over 150 small creditors out of pocket to the tune of $17 million. It seems the fund raising hadn't ended with the supplementary prospectus. His company was apparently subsequently offering returns as high as 20% p.a. paid monthly to lure investors.

In the end, slow property sales, poor land purchase decisions and mountains of lender debt (some at 30% p.a.) and investor debt brought the company down. Ex-sports personalities don't necessarily make good business people. Cold comfort to those who lost money.

A Christian talk show host promised to enrich clients. His Ponzi scheme bilked them out of millions.

November 2021

Evergrande - Not So Grand Or Too Big To Fail?

September 21, 2021 Edward Dever

That is the main question troubling markets in Asia and elsewhere at present.

And it is perhaps a question only President Xi Jinping in China can answer.

China Evergrande Group is a Fortune Global 500 China-based property conglomerate which has diversified into eight major industries, including automobile manufacturing, film and TV production, theme parks, healthcare and food production. In the property sector, it owns more than 1,300 projects in over 280 cities in China.

For students of Australia's 1980s corporate excess, think Alan Bond and Bond Corporation, just on steroids.

Evergrande has around USD 300 billion of debt to 171 domestic banks and 121 other financial firms and is facing looming interest payments on its bank loans and bonds and a collapsing share price. Protests have taken place outside its offices in China.

The level of Evergrande's debt is around three times the national debt of New Zealand.

Recently, Evergrande has been borrowing money from its employees to stay afloat (apparently telling employees to lend it cash or lose their bonus) and offering properties (including car park spaces) in satisfaction of its debts. Rumours abound that local creditors will be paid in full while foreign creditors will be required to take haircuts.

Any restructuring would be a complex affair. Bondholders are already establishing creditors committees to engage in discussions with Evergrande. Creditors may agree to defer interest payments and rollover loans although this would seem to just delay some form of inevitable restructuring.

Ultimately, despite discouraging government bailouts, the Chinese Government may step in and organise an orderly sell down of assets. This would be driven by a need to ensure market stability and may involve selling off non-core assets - Evergrande has apparently already been completing asset disposals - and hiving off other assets into a workout vehicle. A split between Evergrande and a bad asset vehicle, probably not named "Not So Grande".

With China's current crackdown on wealthy entrepreneurs and its tightening of restrictions on indebted developers, founder Hui Ka Yan will need to rely on his Party connections to determine if he has a role going forward. This assumes President Xi does not decide to use Evergrande as an example of how capitalism goes wrong. If so, the founder's prospects of remaining involved in Evergrande seem slim.

What Is China Evergrande and Why Is It In Trouble?

September 2021

Thai-based Airlines Battle Covid Restrictions

August 15, 2021 Edward Dever

Flying under the radar is the recent creditor approval of the rehabilitation plan for Nok Air. The plan goes before the Central Bankruptcy Court on 26 August 2021 for approval.

The prospects for airlines such as Nok Air and Thai Airways seem grim at present given the surge in Covid-19 cases throughout Thailand.

In July, the Civil Aviation Authority banned all flights to and from provinces declared Covid-19 hotspots (dark red zones) forcing all airlines to halt domestic operations. Nok Air shifted its temporary base to U-tapao airport near Rayong in an effort to keep some flights operational and continue to service Phuket which has reopened to vaccinated foreign tourists under a Sandbox model, as well as limited other flights.

The Government was forced to make exceptions to the grounding of flights to support the viability of the Sandbox programs like Phuket and Koh Samui.

Reported Covid-19 cases in Thailand currently exceed 20,000 per day (out of an estimated population of 70 million). The actual case numbers are likely to be significantly higher. The Government's admission that cases are likely to double in the next month indicates a failure of current restrictions to contain the spread of the Delta variant. The Government's approach to dealing with the Delta variant has been 'too little too late' although the rollout of vaccinations continues.

After much success battling Covid-19 in 2020, several policy failures have helped the spread of Covid-19 throughout Thailand, including the failure to cancel the Songkran New Year holidays in April and shifting Covid-19 positive cases back to their home provinces to alleviate the strain on Bangkok's medical resources.

The failure to enforce a proper lockdown is linked to business pressures and an inability to offer anything more than meagre Government financial support to individuals affected by a lockdown. Lockdowns also make social distancing more difficult for multi-generational households.

With a significant portion of the country's annual GDP linked to foreign tourism, the battle ahead for Thai-based airlines and other tourism related business is a mammoth one. The Government's plans to completely open up the country to vaccinated foreign tourists by mid-October (the 120 day plan) seem in tatters with the airlines remaining on life support.

Nok Airlines PCL - Creditors’ Meeting Resolution

CAAT allows special Sandbox charter flights to Bangkok

Country to reopen 'in 120 days'

August 2021

Thai Airways Cleared For Takeoff But Needs Funding

June 22, 2021 Edward Dever

On 15 June 2021, Thailand's Central Bankruptcy Court approved THAI's rehabilitation plan. The plan administrators will now implement it.

THAI remains financially crippled by years of mismanagement and Covid-19's coup de grace. It is now seeking around Bt 50 billion (USD 1.6 billion) over the next three years from government and private financial institutions in order to stay afloat. Current cash reserves are not expected to last past 2021.

The acting CEO hopes THAI will complete plan implementation within five years. However, if THAI remains balance sheet insolvent in three years, it faces delisting by the SET. This issue may be resolved by the proposed capital increase under the Plan. There are also plans for debt to equity conversions but these relate mainly to accrued interest amounts and will not take place until year 4 of the Plan.

THAI's plan approval comes at a time when Thailand has been hit with a third Covid-19 wave with reported cases exceeding 3,000 per day. Bangkok remains in de facto lockdown. The Thai Prime Minister has declared that the country will open to foreign tourists within the next 120 days. Phuket will be the first province opened under the "Phuket Sandbox" model on 1 July.

THAI ticket holders owed refunds may be waiting some time. While ticket holders will be paid 100% of ticket value, the deadline for repayment is 31 March 2024. THAI may also offer travel vouchers in lieu of cash.

THAI rehabilitation plan summary

June 2021

Creditors Approve THAI's Rehabilitation Plan

May 30, 2021 Edward Dever

On 19 May 2021, Thai Airways creditors approved the rehabilitation plan at an adjourned online creditors meeting.

According to THAI's SET Notice, creditors holding over 91% of debt attending the meeting and voting approved the plan, including three amendments proposed by the planner, Bangkok Bank and the Federation of Savings and Credit Cooperatives of Thailand Limited

On 28 May, the Central Bankruptcy Court set a hearing date on 15 June to consider the plan and two objections raised by creditors.

The plan, as approved by creditors, appears to be more of a standstill arrangement with creditors deferring repayment in the hope that THAI's business can be revived and no hard decisions implemented to repair the balance sheet.

THAI faces the prospect of delisting from the SET if it is unable to fix its balance sheet insolvency within three years.

It is also unclear how THAI will fund the cash required to effectively restart the business.

Thai Airways says court hearing on business restructuring moved to mid-June

May 2021

Government Squabbles Ahead of THAI Creditor Vote

May 10, 2021 Edward Dever

Concerns that Thai Airways is just a toy for members of the Thai Government to argue over are reinforced by claims that the Finance Ministry will not participate in any recapitalisation under its rehabilitation plan.

The current argument centres around whether THAI should once again become a state enterprise with the Ministry of Finance increasing its shareholding above 50%.

The reduction below 50% prior to THAI entering rehabilitation proceedings was largely an exercise in shuffling the excess shareholding to satellite Government-linked funds.

The Finance Minister appears to be in support of his Ministry regaining majority control of THAI. The head of the State Enterprise Policy Office (SEPO) is taking the contrary view, arguing that THAI is effectively a money pit and pouring more funds into it cannot be justified to taxpayers.

THAI's plan was scheduled to be voted on by creditors at a meeting on 12 May. Creditors seemed likely to support it given the prospects for THAI if the plan is rejected. However, the vote has now been delayed until 19 May.

Govt 'won't back' billion-baht THAI cash injection

May 2021

Thai Airways - Negative Equity Until 2030

March 29, 2021 Edward Dever

Thai Airways is in the midst of its rehabilitation plan with a creditors' vote on the plan scheduled for 12 May 2021.

THAI's balance sheet insolvency has forced it to make a further disclosure to the Stock Exchange of Thailand as it faces delisting.

In their SET notice on 26 March 2021, THAI indicates that it will remain balance sheet insolvent until 2030. Given that THAI has a three year period to remedy its negative equity position, it admits that the Company may be delisted in due course from the SET.

THAI also gives further insight into its rehabilitation plan, disclosing that it expects a capital increase and creditors will have the option of a debt to equity swap.

It is not clear whether the Thai Government will participate in any capital increase or debt to equity conversion in order to maintain its shareholding in THAI,

Also unclear is whether creditors will accept equity in what may become a non-listed entity.

Meanwhile THAI is disputing around half of its liabilities by claiming that these amounts relate to future expenses and were incurred after the airline entered rehabilitation proceedings.

THAI is disputing around 192 billion baht (USD 6.3 billion) claimed by 48 lessors including BOC Aviation Ltd and SMBC Aviation Capital Ltd, and another 33 billion baht (USD 1.1 billion) that Rolls-Royce says it is owed for maintenance services.

The Thai Bankruptcy Act provides for disputed claims to be resolved by the Official Receiver with a right of appeal to the Bankruptcy Court for any aggrieved party.

THAI - SET Notice - 26 March 2021

Thai Airways disputes $7.4bn of aircraft lessor claims

March 2021

Is The Thai Airways Rehabilitation Plan A Missed Opportunity?

March 3, 2021 Edward Dever

Media reports indicate that THAI's plan submitted on 2 March 2021 to the Bankruptcy Court in Bangkok does not deal with its massive debt burden. The plan apparently contemplates increasing THAI's debts.

THAI has around THB 410 billion (USD 13.5b) in debt.

It needs to raise around THB 50 billion (USD 1.65b) over the next two years.

This may be achieved through “borrowing, investment or debt to equity conversion” according to THAI. (Any debt/equity conversion would not raise new funds.)

The plan does not require haircuts or debt reductions, apparently out of fear that creditors may not approve the plan. Instead, THAI has asked for a three-year debt moratorium after which the debt will be repaid.

THAI's plan is to create a three year debt time out during which it will attempt to turn around the airline. It plans to achieve this via four steps including making it the airline of choice, expanding services, upgrading digital capabilities and improving operational and cost efficiencies.

The lack of balance sheet reform under the plan will remain an IED with a three year fuse. Worse, it looks like a missed opportunity.

There are two main reasons for using court-sanctioned rehabilitation proceedings in Thailand:

1. To protect a company from creditors while it restructures.

2. To implement balance sheet reform using the Bankruptcy Act's plan voting procedures to cram down creditors.

No doubt there are political issues at work but not using the Act's provisions to implement balance sheet reform does seem like a missed opportunity.

THAI's financial woes preceded Covid-19 and it seems unlikely that THAI will have such a change in its fortunes that, in three years, its debt burden becomes sustainable.

THAI has long been burdened by its vast array of aircraft and engine types so plans to reduce its types of aircraft from twelve to five and types of aircraft engines from nine to four are a step in the right direction.

THAI's creditors will meet on 12 May 2021 to vote on the plan.

Thai Airways seeks to raise B50bn

THAI - SET Notice Re Plan

March 2021

When Reverse Ghost Employees Emerge On A Restructuring

February 25, 2021 Edward Dever

Reports have emerged that Thai Airways has allegedly suffered fraud by employees claiming funeral benefit payouts for themselves while continuing to work for the company.

Since 2013, this alleged fraud is estimated to have cost THAI around USD 500,000.

A number of years ago, I was involved in a restructuring which was almost derailed at the 11th hour when it became apparent that a relative of senior management was still drawing a salary from the company five years after their death.

It is very odd that THAI's Human Resources Department does not cross check its payroll against employees who have "died" with resulting payouts by the Savings Cooperative for Employees of Thai Airways.

It is worth remembering that, apparently, THAI could not even provide a single comprehensive list of its frequent flyer program members as it entered formal rehabilitation proceedings.

Thai Airways employees accused of faking death to claim funeral payout

February 2021