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

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.

Political Risk - The Government Slot Machine That Never Pays Out

March 18, 2021 Edward Dever

In the 1990s, Bangkok embarked on three mass transit infrastructure projects - Hopewell, which was never built, and the completed BTS (Skytrain) and MRT (subway) systems. Arguably, Bangkok would have been better served by a single commuter transport network, preferably the MRT. Such a plan would have required Government departments to work together and a corruption-free system of government.

At the end of a long arbitration and court process following the cancellation of its project, Hopewell finds there is no guarantee that it will ever see compensation from the Thai government.

The latest hiccup in Hopewell's claim seems to be based on procedural errors relating to the Supreme Administrative Court's resolution in favour of Hopewell. The Constitution Court has ruled that these errors make the resolution unenforceable.

The Supreme Administrative Court's apparent inability to follow its procedural rules is hardly Hopewell's fault and it would be reasonable for Hopewell to contend that their claim shouldn't be denied due to the Court's errors.

But this is Thailand and it is likely that the Government is looking for any excuse to avoid paying compensation.

Kingsgate Consolidated Ltd, currently awaiting a decision in their arbitration case for compensation relating to the closure of the Chatree gold mine, will no doubt be watching developments in the Hopewell case with interest.

A win for Kingsgate in their arbitration case may not necessarily mean the end of their saga if the Hopewell case is an indicator of the Government's approach.

Hopewell saga bombshell - Constitutional Court reverses 2002 ruling

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

When Do Smoke Alarms In Queensland Need To Be Upgraded?

February 18, 2021 Edward Dever

Queensland residential landlords are required to upgrade smoke alarms in their properties to comply with the updated requirements under the Fire and Emergency Services Act 1990.

Some smoke alarm companies are advising that all upgrades must be completed by 31 December 2021.

As an example:

"This legislation requires all Queensland rental properties to have smoke alarms upgraded by 31 December 2021 and from 1 January 2022, it will be illegal to rent a property that has not been upgraded."

But that is not what the legislation says.

Section 104RBA(2) of the Fire and Emergency Services Act states that the compliance requirement applies where, after 31 December 2021, a new tenancy for the dwelling starts or an existing tenancy for the dwelling is renewed.

For an existing tenancy that is renewed, for example, on 31 March 2022, the compliance requirement applies from that date.

This view has been confirmed with Queensland Fire and Emergency Services (QFES).

This allows landlords to plan upgrades in line with tenancy renewals or vacancies. For some, it may suit to do upgrades during 2022 as tenancies expire or renew.

Ignore the smoke alarm company hype and plan upgrades in line with the legislation. Chat with QFES if you have any questions.

QFES Fact Sheet

Fire and Emergency Services Act 1990

Building Fire Safety Regulation 2008

February 2021

Will Hong Kong Remain An Attractive Arbitration Destination?

February 10, 2021 Edward Dever

Some interesting comments on moves by companies to switch from Hong Kong as the governing law and place of arbitration in contracts in the wake of China's tightening grip on the Territory.

In contracts involving foreign companies and counterparts in South East Asia, Hong Kong and Singapore are often viewed as preferred independent arbitration locations. Any shift away from Hong Kong may be a boon for Singapore.

When acting for foreign companies, the method of dispute resolution is often crucial. In some jurisdictions, foreign arbitral awards may be enforceable upon registration whereas foreign court judgments can only be used as evidence in local civil proceedings.

It is understandable that companies may be nervous using Hong Kong as a place of arbitration when the long term implications of the changes in Hong Kong remain unknown.

Companies consider writing Hong Kong out of legal contracts

February 2021

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

Qld Strata - Joining Class Actions

January 23, 2021 Edward Dever

Piper Alderman has filed its class action against Stanwell Corporation Ltd and CS Energy Ltd. (The Qld Energy Class Action has been filed)

The claim relates to alleged conduct which resulted in artificially inflated electricity bills between 2014-2019.

There has been some discussion in Qld strata circles whether Committee approval is sufficient to join the class action or whether a special resolution at a general meeting is required.

Subject to certain exceptions, Committees cannot "start a proceeding". A special resolution at a general meeting is required. Owners at a general meeting can generally ratify past actions of the Committee. For example, see:

Body Corporate for Quay Terraces Cts v Brisbane City Council [2016] QPEC 12 (8 March 2016)

Bahlaka Lodge [2020] QBCCMCmr 505 (30 September 2020)

The view of several strata managers is that Committee approval is sufficient.

There is little clear guidance. As at December 2020, the Qld Office of the Commissioner for Body Corporate and Community Management had not issued any guidance on a body corporate joining class actions. Nor does the legislation specifically deal with class actions.

Given the possible payout, it will be uneconomic for most bodies corporate to seek legal advice on the issue.

In the absence of specific guidance, it may be appropriate for bodies corporate at their next AGM to approve the Committee's actions, thus putting the issue beyond doubt.

'Australia's largest energy class action' filed against Queensland power companies accused of driving up prices illegally

January 2021

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