Thai-Italian Distress

Thai Contractor Faces $3 Billion Debt Crunch as Some Overseas Projects Fail

Italian-Thai Development delays payments after years of losses
Company in talks with banks for fresh loans to beat crisis

By Anuchit Nguyen (Bloomberg)

March 14, 2024 at 4:00 AM GMT+7

A cash crunch at Thailand’s largest construction company is fueling concern among investors, regulators and rating agencies already unnerved by a series of local corporate scandals and debt defaults.

Italian-Thai Development Pcl confirmed on Wednesday reports that it is in talks with banks for new loans to tide over the liquidity crisis that led to delayed payments to some workers and contractors. Trading of shares in Italian-Thai, which had total liabilities of 108 billion baht ($3 billion) including bonds, loans and trade credit as of Sept. 30, was suspended this month after the contractor missed the deadline for submitting its full-year 2023 financial statement. The contractor posted a cumulative loss of about 6 billion baht from 2020 to 2022 as it took on engineering projects in places including India, Taiwan and Myanmar — where imposition of military rule led to delays, shutdowns and write-downs.

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The financial squeeze has forced the company to explore the sale of a mining unit and extend
the maturity period of about 15 billion baht worth of bonds by two years. Italian-Thai shares have halved since a a 2023 high of 1.69 baht, giving the firm a market value of 4.5 billion baht.

“The market is nervous about the banks that are owed and how much loan exposure they have,” said Narongsak Plodmechai, chief executive officer of SCB Asset Management Co., which oversees about $36 billion of assets. “It just adds more noise to the already weak market sentiment.”

Italian-Thai had total revenue of 47 billion baht in the first nine months of 2023. It swung to a loss of 45 million baht in the July-September quarter. The company has requested the stock exchange to extend the financial statement filing deadline until March 29, citing onging information processing and reviews by its auditor.“We have been in close discussion with related parties about Italian-Thai,” Pornanong Budsaratragoon, secretary-general of Thailand’s Securities and Exchange Commission, said on March 11. “The impact will probably be much greater than other cases if the company really has financial trouble given its size.”

The regulator is stepping up supervision of risky bond issuers to boost payment safeguards and investor confidence. Demand for high-yield debt in Thailand has waned after series of payment delays and corporate scandals, including one related to Stark Corp.

The SEC plans to tighten rules on new bond sales and disclosure norms, it said on Thursday. Key proposals include the requirement for clear specification of high-risk bonds and disclosure of financial covenant breaches.

Italian-Thai’s revenue from construction projects is insufficient to cover overall expenses and some employees have not been paid their full salaries, it said in an exchange filing Wednesday in response to media reports about its liquidity status. It expects to resolve the cash flow problem in two to three months.

Rating Risk

TRIS Rating posted a negative “CreditAlert” on ITD’s “BB+” rating on Jan. 12 following the firm’s move to amend financial covenants and extend bond maturities. A downgrade is likely “should there be a significant deterioration in its financial position after the auditor’s extended review,” TRIS said last week.

Italian-Thai’s biggest contracts include those with Thai government agencies on infrastructure such as a new high-speed train line, expressways and an intercity motorway. It was also the major contractor on Suvarnabhumi Airport, the country’s largest facility, and the nation’s first subway line in Bangkok.

The construction giant was set up in the 1950s after Thailand’s Chaijudh Karnasuta and Italian Giorgio Berlingieri cooperated in salvaging five ships that sunk in the Chao Phraya river. Children of Chaijudh, including company President Premchai Karnasuta and Nijaporn Charanachitta, are also among the top shareholders of the operating firm of the Mandarin Oriental Bangkok hotel, according to data compiled by Bloomberg.

Premchai is no stranger to controversy. He went to prison after being convicted in December 2021 for wildlife poaching, including of a rare black panther about four years earlier. He was released
on parole in October 2023.

— With assistance from Lee J Miller