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

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.

Covid-19 Land Tax Relief - How Qld and NSW Programs Differ

September 18, 2020 Edward Dever

Covid-19 has shown that Australia is a collection of States and Territories rather than one nation.

Australia has become a quagmire of different rules for travelling between States. We have seen different rules apply to similar events such as funerals depending on your State.

Land tax relief is another example of State differences.

In Qld, land tax relief is offered to landowners where the ability of the #tenant to pay rent is affected by Covid-19 (and their rent is reduced) and also where the landowner's ability to secure tenants has been affected by Covid-19.

Qld relief is self-assessed. (Subsequent auditing is likely.)

Qld is also extending the relief to the 2020-21 land tax liability (applications close on 26 February 2021).

(Qld Land Tax Relief Measures)

In NSW, relief is offered to landowners whose tenants can prove Covid-19 financial distress and have been provided rent reduction.

No relief is currently provided to landowners where their ability to secure tenants has been affected by Covid-19.

NSW is approval based rather than self-assessed.

Relief is currently limited to the 2020 land tax liability.

(NSW Land Tax Relief Measures)

Qld clearly has the more generous relief program at this point.

Update - 23 September 2020

NSW has now extended its Land Tax relief program until 31 December 2020.
Rental support measures in NSW to be extended for six months

September 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

Nok Air Follows THAI Into Formal Rehabilitation Proceedings

July 31, 2020 Edward Dever

Thai-based airline, Nok Air, has announced it will follow Thai Airways International into formal rehabilitation proceedings.

Nok Air is part owned by THAI (around 13%) and has been unable to fly its 18 international routes due to Covid19 and its domestic routes in 23 provinces are running at around 30% of its normal schedule.

Nok Air claims that only 200 customers are still awaiting refunds.

"Nok Air insisted on Thursday its business would be able to return to solvency despite the airline following Thai Airways' lead and filing a business rehabilitation request with the Central Bankruptcy court."

Nok Air will be just fine, insists CEO

July 2020

Will Diminishing Income Returns Affect Residential Property As An Asset Class?

July 15, 2020 Edward Dever

Even before Covid-19, lockdowns and social distancing hit our shores, income returns from residential investment properties were looking suspect.

Flat wage growth has limited the ability to raise residential rents. Not applicable in all property markets but as a general principle.

Meanwhile, costs such as rates, water rates, strata levies and land tax continue their relentless march north.

Then add Covid-19 to the mix.

Investors need to continually focus on cost efficiencies to maintain returns.

The linked articles below highlight one opportunity for cost efficiencies.

Professor Fels calls it the Loyalty Tax. I often refer to it as the Lazy Investor Levy.

Insurance companies rely on customers being lazy and not shopping around for a better deal. Investors who rely on their agents to renew their insurance are unlikely to be getting the best deal.

There are significant cost savings, particularly on landlord protection insurance. Your own insurance company will often offer you a better deal online than in your renewal notice.

In terms of cost savings, it is the ultimate low hanging fruit.

NSW regulator tackles $3.6b in hidden insurance fees

Lifting the lid on home insurance price gouging

July 2020

What Strata Records Won't Show You

July 10, 2020 Edward Dever

Brief overview on what to look for when examining strata records - What to look for when reviewing strata records.

Reviewing fund balances is important. However, much can be learnt from reading Meeting minutes. You will get a sense of the issues within the complex. Many strata reports do not go to this level of detail. However, some strata records are accessible online

Beyond strata records, an experienced property inspection person is essential. Many headaches can be avoided with a detailed inspection. Often the report allows you to reframe an offer to take into account the issues the report raises.

Some issues reports will not reveal.

I have seen instances where the vendor company has been struck off by ASIC, complicating a transfer. In both cases, the investment did not proceed for other reasons so dealing with an asset effectively vested in ASIC did not have to be resolved.

One odd experience was an apartment purchase where the neighbour suffered mental health issues. He had forced a next door neighbour to sell after throwing their newspaper on their roof for months. It became apparent that no tenant would stay beyond an initial six month tenancy. The issue was ultimately solved by finding the right tenant and seven years of peaceful tenancies ensued.

The strangest aspect of that example was that the tenant who moved in and lived there quietly for seven years was from another apartment in the complex. The neighbour had past disagreements with him but, when he moved in next door to him, became quite friendly with him and they actually shared the daily newspaper for many years. (Probably a lesson for the person who lived in the house next door who ultimately sold up and left.)

There are, of course, procedures for resolving disputes between apartment owners. But there seemed little point in pursuing this route given the difficulties of proving that the other owner was responsible for tenants not renewing leases and he was unlikely to attend any mediation process or adhere to any agreement. Better to find a tenant who could deal with the situation.

Sometimes the practical solution is more effective than the legal solution.

July 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

Landlord Protection Insurance - Market Starts to Reopen

June 16, 2020 Edward Dever

Two months ago, as Covid-19 related restrictions resulted in job losses and a potential crisis among tenants and landlords, insurance companies suspended issuing new landlord protection policies.

The suspension was a reaction to the likelihood of significant evictions and claims under tenant default provisions of policies. The Government freeze on evictions and other support measures helped minimise the risk of claims.

In welcome news for residential property landlords, some insurance companies are starting to recommence issuing these policies. This allows for some price shopping on renewals. However, new policies are not currently being offered with optional tenant default cover nor, in some cases, cover for theft or malicious damage by tenants.

Among the Suncorp Group, AAMI continues to offer new policies. Suncorp and Terri Scheer policies are still suspended as are policies of Australian Landlord Insurance. Coles Insurance (backed by IAG) has recommenced issuing policies as have companies such as EBM RentCover and Allianz.

Examples:

AAMI Suncorp Terri Scheer Australian Landlord Insurance Coles Insurance

EBM Rent Cover Allianz SGUA

June 2020

Covid-19 and Landlords Practising the Art of Cautious Optimism

June 13, 2020 Edward Dever

Many landlords have been practising the art of cautious optimism for the past few months - crossing their fingers and hoping for the best.

Since the COVID-19 restrictions commenced, residential property landlords have been through three end-of-month payment cycles. Sufficient time to judge the impact of COVID-19.

The impact on landlords would obviously vary depending on the exposure of their tenant mix to industries most affected by shutdowns. Landlords with a tenant mix skewed towards, e.g., healthcare workers and pensioners, would be faring better than those skewed towards hospitality workers.

The current staged reductions of restrictions is no guarantee future problems will not emerge with tenancies. A resurgence in COVID-19 cases and the ultimate withdrawal of support measures such as JobKeeper payments are factors which could still impact residential tenancies. Tenants who have so far resisted requesting assistance may ultimately make requests if their employment prospects do not improve.

It remains unclear whether the Qld land tax rebate will be extended beyond 30 June. For those eligible for this rebate, it is conceivable that circumstances allowing them to access the rebate could arise only after 30 June.

Coronavirus, a recession and renters not paying up — here's why some landlords are struggling right now

June 2020