Thai Airways - Final Deadline For Rehabilitation Plan

January 29, 2021 Edward Dever

Thai Airways has secured a second and final extension for submission of its rehabilitation plan to the Central Bankruptcy Court. The new deadline is 2 March 2021. (THAI - final deadline)

Work on the rehabilitation plan has not prevented THAI selling some non-core assets. THAI has announced that it has completed the sale of a 15.5% stake in Bangkok Aviation Fuel Services (BAFS) to Ratch Group for Bt 2.7 billion (US$90 million). THAI retains at 7.06% stake in BAFS.

The Central Bankruptcy Court approved the sale on 3 December 2020 with completion on 19 January 2021. BAFS is no longer an affiliate of THAI. (THAI sells BAFS)

Ratch Group is 45% owned by EGAT, the Thai government electricity generating authority, so the sale is somewhat of a shuffle amongst government related entities.

The treatment of creditors under the draft rehabilitation plan remains unclear.

January 2021

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.

South East Asia Tourism - Darkness Before The Dawn

January 18, 2021 Edward Dever

A year ago, I wrote about Covid-19 and the potential decimation of Asia's tourism sector.

In hindsight, I underestimated the length of time it would take countries to get Covid-19 under control.

In the case of Thailand, a Covid outbreak in the past month centred on markets outside Bangkok, staffed predominantly by migrants, has resulted in a semi-lockdown. Tourist spots which had realigned towards the domestic market have taken a further battering. (How Thailand Was Caught Out)

Thailand has been largely unsuccessful trying to restart international tourism with a quarantine component. (Thailand - No-one Came)

Contrast this approach with Maldives which has been open for quarantine-free tourism for several months. (Maldives Monitors Arrivals)

Across South East Asia, tourism ventures are mothballed or dead in the water. Some companies still operating have opted to give up office space to save costs and are operating from serviced offices.

It is not all gloom and doom. Some OTAs are actively recruiting, seeking to replace some of the staff made redundant last year as they try to position themselves for economies reopening hopefully during 2021 as Covid-19 vaccination becomes more widespread.

There will be plenty of restructuring ahead. Not all tourism players will survive. New players will emerge and everyone will need to adapt to a post-Covid tourism world.

January 2021

Restructuring - When 1 + 1 No Longer Equals 2

December 4, 2020 Edward Dever

In any restructuring involving creditors, one of the hardest issues is value destruction.

A creditor's starting position will normally be getting their money back. While this does happen, often it is just not possible.

Value destruction in a business can occur for many reasons, including through:

- poor business decisions
- fraud (including related party transactions)
- external events such as civil unrest or Covid-19
- asset price deflation
- goodwill erosion
- changing market conditions.

One example of value destruction that comes to mind was where a company was lent USD 120 million by a group of banks even though they had only requested USD 90 million. So the company speculated on the stock market with the balance USD 30 million and lost it.

The banks were unhappy. Getting their money back was impossible. Arguably, the banks shared some blame in this instance as they had not monitored how the USD 30 million was used.

Where value destruction occurs, the prospect of creditors being made whole diminishes. A restructuring plan can be framed so that creditors participate in any recovery upside. Often, this is via a debt:equity swap or the issue of a convertible security interest.

How well a stakeholder fares in a restructuring may depend on their negotiating skills and whether the jurisdiction is more creditor or debtor friendly. Creditors are also subject to cram down under court approved restructurings.

It can be a challenge to get creditors to act realistically. It is why banks will often swap out the person who extended or managed the credit facility for a fresh face. This hopefully removes any emotional element from the restructuring.

December 2020

Why Smaller Companies Choose Formal Rehabilitation Proceedings

November 16, 2020 Edward Dever

The rehabilitation proceedings under Ch. 3/1 of the Thai Bankruptcy Act have generally been utilised by larger companies. Think TPI, NTS Steel and, more recently, Pace Development and Thai Airways.

Given costs and time frames involved, why would a smaller company choose this restructuring route?

First, an automatic stay applies.

Under S. 90/12, all existing court proceedings are stayed and no new proceedings may be commenced. Property essential to business operations cannot be recovered. This may be critical to survival of the business. For smaller companies, this means essential leased equipment or factories cannot be seized.

Second, formal proceedings offer a new investor a clean slate.

Under Ch. 3/1, all creditors must file claims for repayment which are dealt with under the plan. Any investor then has a clear understanding of the business's liabilities. This may favour a company acquisition rather than an asset acquisition where 7% VAT would apply.

Third, debt to equity conversions are permitted.

As a general rule, the Thai Civil and Commercial Code (for limited companies) and the Thai Public Limited Companies Act (for public limited companies) prohibit debt to equity conversions. The exceptions under S. 90/42 of the Bankruptcy Act allow for an easier clean up of the balance sheet, subject to sufficient creditor approval when voting on the plan.

Where existing management does most of the work, including acting as the planner, it may be possible to keep the rehabilitation costs as low as possible. Limited numbers of creditors and general consensus between debtor and creditors would also limited rehabilitation costs.

November 2020

Nok Air Enters Rehabilitation Proceedings

November 5, 2020 Edward Dever

Airlines are flavour of the month at Thailand's Central Bankruptcy Court.

The Court has now approved the rehabilitation petition of Nok Airlines PCL, the budget airline part owned by THAI. This follows THAI's entry into rehabilitation proceedings earlier this year.

On 4 November 2020, the Court approved the appointment of Grant Thornton Specialist Advisory Services, Nok Air CEO Wutthiphum Jurangkool and three other board members to prepare the rehabilitation plan.

Creditors may file claims for repayment of their debts within one month of the Planner's appointment being published in the Government Gazette.

Nok Air gets green light to restructure debt

November 2020

When Equity Ranks Ahead of Debt

October 9, 2020 Edward Dever

One of the more interesting aspects of Thai Airways rehabilitation will be the issue of debt to equity conversions.

THAI's debt load is not sustainable. It was not profitable before Covid-19 hit and any restructuring will necessarily involve dealing with the debt burden.

In many of the larger past restructurings in Thailand, an informal rule applied - equity ranks somewhere above unsecured debt and often above secured debt. While contrary to Thai law, it is a principle adopted by numerous significant family-owned businesses.

In one meeting, a business owner tossed the keys to his steel mill across the table towards creditors seeking debt to equity conversions, simply saying much to their horror: "Ok, you run it then." They were probably the keys to one of his cars but the point was made.

THAI is controlled by the Thai Government. While the Finance Ministry recently reduced its stake so THAI was no longer a state enterprise, the shares were shuffled sideways to a government-related fund.

It is unlikely the Finance Ministry will agree to dilute its stake in THAI as part of the rehabilitation plan. THAI as a national airline will be seen as an important part of Thailand's image with the Government in firm control for better or worse.

October 2020

Thai Airways Rehabilitation Proceedings Recognised In Australia

August 31, 2020 Edward Dever

The recent Australian Federal Court judgment recognising the rehabilitation proceedings in Thailand of Thai Airways reveals several interesting facts regarding THAI.

- THAI's Royal Orchid Plus frequent flyer member details (1.398 million members) are not maintained in a single searchable data base. (Over 87,000 members are based in Australia.) This is extraordinary and likely due to a lack of foresight in upgrading the membership systems as membership grew. It highlights the difficulty of dealing with this group as part of the restructuring.

- In addition to Australia, THAI has sought and obtained orders for the recognition of the Thailand rehabilitation proceedings in Germany, Switzerland and Singapore. THAI has also sought recognition in Japan.

- Trading losses for the financial year to 31 December 2019 were the THB equivalent of AUD 567.7 million. Note this was before the onset of Covid-19 and the shutdown of flights.

- THAI's assets in Australia comprise primarily leased assets and cash.

Didyasarin v Thai Airways International Public Company Limited [2020] FCA 1154

August 2020

Thailand - From 40 Million Foreign Arrivals to Zero

August 10, 2020 Edward Dever

Clear signs of the carnage emerging from Covid19-related travel restrictions.

The closure of two long-standing inbound travel companies in Thailand, Asia World and CBS Travel Asia, is an indicator of the depth of financial calamity faced by destination management companies (DMCs) as a consequence of closed borders and zero tourists.

The comments by AWE sum up the predicament faced by many DMCs:

“Asia World has had no business for the past four to five months and no income because of Covid-19. It seems that tourists will not return to Thailand for a long time, which could be in 2021 or 2022, but nobody can be sure.”

The key to survival is summed up by Asian Trail's CEO:

“It’s all about cash,” said Laurent Kuenzle, CEO, Asian Trails. “Do you have enough to survive, not for three months but 1.5 years? Do you have savings or are you indebted? How much money can you save by reducing expenses, without destroying your company and without losing quality and trained manpower when tourists return?”

Expect more regional closures, particularly those DMCs without recourse to deep pockets to ensure survival.

Thailand’s 60th Tourism Anniversary Turns to Nightmare as Longstanding Travel Agencies Start Closing

August 2020

Thai Airways Works On Easier Option For Ticket Holders Who Requested Refunds

June 26, 2020 Edward Dever

Thai Airways has indicated that it is trying to create a solution to the prospect of over 300,000 ticket holders who have requested refunds needing to file debt repayment claims in Bangkok.

The Thai Bankruptcy Act provides that creditors are required to file claims within one month of publication of the planner's appointment in the Government Gazette. Failure to file a claim generally means all rights are lost.

THAI has apparently discussed this issue with the proposed planner and expects to announce its approach once the planner is appointed, expected in August.

Hopefully good news for THAI customers who have requested refunds, particularly those based outside Thailand who faced the prospect of needing to file claims with the Bankruptcy Court in Bangkok as well as have their documentation appropriately notarised and legalised.

THAI has also clarified that Royal Orchid Plus frequent flyer members with points balances do not need to file debt repayment claims in relation to their points. Also, ticket holders whose tickets remain unused do not need to file claims. Tickets remain valid for use in the future.

Clarification regarding the notification of the Central Bankruptcy Court, Thailand (THAI Business Reorganization)

June 2020

What Next For Thai Airways?

May 21, 2020 Edward Dever

Rumours circulated in Thailand earlier this week that Thai Airways would file for bankruptcy.

This claim was denied by THAI which is preparing a rehabilitation plan for Government approval. More likely is that THAI may enter formal rehabilitation proceedings under the Thai Bankruptcy Act

Prior to 1998, liquidation was the only option under the Bankruptcy Act. Proceedings involving large companies were about as rare as a black kookaburra. In 1998, Chapter 3/1 was added providing a form of rehabilitation proceedings similar to US Chapter 11.

It was subsequently confirmed that THAI will enter formal rehabilitation proceedings under the Thai Bankruptcy Act following Cabinet approval.

This will be the highest profile case through the rehabilitation proceedings introduced in 1998 and certainly the largest case since the Asian Economic Crisis.

From the media reports, it seems that the Ministry of Finance will reduce its majority shareholding as part of the restructuring although this could just be shifted to another Government fund. THAI will no longer be a considered a State Owned Enterprise with the employees' union to be disbanded. It is not clear how THAI will be funded during the rehabilitation.

It also not clear how existing ticket holders will be treated.

Under the Thai Bankruptcy Act, all amounts owed at the date of the rehabilitation order, are normally quarantined and creditors must file claims for these amounts.

Don't discount authorities coming up with a solution which treats ticket holders fairly that doesn't strictly comply with the Bankruptcy Act.

THAI carried around 19.4m passengers in 2019 which is an indicator of the complexity of dealing with ticket holder creditor claims.

THAI - Cabinet gives nod to THAI rehab
https://lnkd.in/gsjk2EP

May 2020