Cambodia - Supercars And Lions Become Consumer Accessories

June 30, 2021 Edward Dever

The sight of supercars and pet lions shows how much things have changed in Cambodia in the past 25 or so years.

I remember my first flight into Phnom Penh's Pochentong International Airport in 1995. As we landed, I looked out across the scorched bare fields and thought Pol Pot had really done a number on the country.* Of course, it was the middle of the hot season. When I flew in later in the year, there was a rich tapestry of rice fields as we came into land. Those fields consumed a Vietnam Airlines flight (VN815) in September 1997 when it crashed short of the runway in poor weather.

When I checked in at the Cambodiana Hotel (the only acceptable hotel choice at the time), The Killing Fields was the in room movie of the day. Meetings were often held in the hotel. Several Government officials lived in the hotel in those days. You generally just ate in the hotel. By the third day, you had eaten everything on the menu. The two restaurants and room service shared the same limited menu items.

Occasionally, meetings would be held in fairly run down mansions such as the former French Ambassador's residence which apparently had then become Pol Pot's HQ and then the UN HQ before assuming the function of the offices of the Council for the Development of Cambodia (CDC). If you didn't keep the hotel car at a meeting, you would need to flag down a motorcycle to take you back to the hotel. From memory, it was USD 1.00 for the return trip.

On one of my trips, the first set of new traffic lights in Phnom Penh was installed. The first escalator in a shopping centre was some years away (2002).

Legal agreements needed to be comprehensive as the laws in many areas were deficient or non-existent. You could register a company at the Ministry of Commerce but there was no company law.

The practice of first-in-time in registering trademark applications was a fluid concept if you were a business person with sufficient influence within the government. The government would also roll out tanks to protect said business person's hotel during the 1997 coup. And he wasn't sanctioned when he shot out the front tyre of a Royal Air Cambodge Boeing 737 after disembarking. (That was an interesting discussion with the Chairman of RAC.)

Intellectual property enforcement was in its infancy. Sheraton had some success, getting a hotel using its name to change to "Sharaton" but the "McSam Restaurant" logo bore a striking resemblance to McDonald's.

The wealth disparity in Cambodia was evident back then but has only grown over the intervening years. The seeds of that growth were planted during and immediately after the UN period. The difference in 2021 is that wealth and conspicuous consumption are on constant display, particularly among the elite's offspring. One need look no further than the Supercars of Phnom Penh Instagram page.

Pet lion seized from home in Cambodia capital after appearance on TikTok

* It is estimated that the Pol Pot regime killed around 25% of Cambodia’s population between 1975 and 1979.

June 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.

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

The Threat of Criminal Proceedings as a Gag

June 10, 2021 Edward Dever

All too often, Thailand's criminal defamation provision and the Computer Crime Act are used as a weapon by anyone accused of misconduct to gag media reporting.

The latest instance involves claims that certain parties were involved in attempts to bring about a favourable court ruling in relation to excise duty payable on the import of Toyota Prius parts into Thailand. The duty amount involved is USD 350 million.

The issue came to light following an internal investigation by Toyota and its disclosure to the US SEC that its Thailand operations may have violated the Foreign Corrupt Practices Act. A grand jury has been empanelled in Texas to examine the issue.

In response, all named parties have threatened criminal defamation proceedings and action under the Computer Crime Act against parties involved in the initial reporting. Some parties have also made the same threat against Toyota and anyone who shares the reporting on social media. The result of these threats is two-fold - it gags media not wanting to be dragged into criminal proceedings but also amplifies interest in the issue.

The Court of Justice has indicated that it will investigate the issue. This seems odd given that there is a National Anti-Corruption Commission in Thailand and the issues raised would seem to fall within their authority. The NACC is apparently investigating allegations that Rolls Royce paid bribes to Thai Airways.

Bribery is endemic in certain South East Asia countries. At times, it is quite sophisticated, involving offshore payments dressed up as consulting arrangements or interposed entities in joint ventures allowing share participation.

It often involves the purchase of equipment at inflated prices. One of the odd outcomes of this type of arrangement is bribes being depreciated as a component of a balance sheet asset due to the relevant asset's higher initial carrying value.

The grand jury investigation in the US may shine an uncomfortable light on certain dealings in Thailand..

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

VCAT's Treatment of Pets - A Warning for Queensland Landlords

April 5, 2021 Edward Dever

Once Covid-19 starts to disappear from the Qld government's radar, expect the government to return its attention to tenancy reform.

Part of the proposed reforms would allow tenants to keep pets as of right in residential tenancies, with landlords being able to challenge the issue at QCAT.

Media reports indicate that, of 18 VCAT application involving pets which have proceeded to final determination, only one landlord has been successful.

Since the Victorian tenancy reforms, apparently 340 applications relating to pets have been submitted with 139 matters withdrawn or settled.

It seems inevitable that some type of reform will occur. Adopting Victoria's broad reforms may overwhelm QCAT in the short term until landlords realise the likely futility of contesting the issue.

Hopefully, there is guidance on what constitutes reasonable grounds for refusing consent for a pet. There are residential properties which are clearly not suitable for certain pets.

As an example, keeping large dogs locked up in small apartments with no outdoor fenced areas while owners are at work is not appropriate for the pet and the likely noise will lead to higher tenant churn rates in nearby apartments.

At the time of submissions on the proposed Qld reforms, the estimated timeframe for QCAT hearing an animal related order (a non-urgent tenancy related matter) following the conciliation process was twenty weeks from lodgement to hearing. Without some form of streamlined process, it is unlikely that a matter would be resolved until most of a six-month tenancy has expired.

Also, without modification, adoption of the Victorian model would put landlords in breach of certain local government requirements regarding the maximum permitted number of dogs on premises. It is not clear whether landlords would be required to make excess pet applications and whether such an application would need to be completed on a continual basis as tenants move in and out with animals such as dogs. Perhaps this will constitute reasonable grounds for refusing consent.

Few landlords succeed in pet challenges under Victorian rental laws

April 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

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