CGS International Securities (Thailand) (CGSI) has an increasingly positive outlook for Bangkok Bank and Krung Thai Bank in the second half of 2025 following the initiation of Voluntary Debt-to-Equity Conversion Right for creditors from Thai Airways.
Thai Airways disclosed to the Stock Exchange of Thailand earlier this morning that its filing is approved by the SEC and becomes effective on 18 Nov 2024.
This will allow Thai Airways’s creditors and bondholders to excercise their right for debt-to-equity conversion at the price of THB2.5452 during 19-21 Nov 2024.
However, Thai Airways’s creditors and bondholders will have to vote on 29 Nov 2024 for the addition of representatives from the Ministry of Finance and Ministry of Transport to be management of the airline’s business rehabilitation plan.
This will not affect the debt-to-equity conversion and its plan to reduce par to wipe out accumulated loss. The airline still expects to resume trading on SET by end-2Q25F.
CGSI wrote in a note that it believes that Thai Airways’ successful recapitalization plan will pave the way for asset quality improvement in 2H25F at BBL and KTB which are its major financial lenders with total loan exposure of THB11.9 billion and THB5.8 billion, respectively.
As of the second quarter of 2024, BBL held a 0.4% share in Thai Airways, which is expected to increase to 5.8% following a debt-to-equity conversion.
Keynote is that both BBL and KTB have reportedly classified their loans to Thai Airways as non-performing loans (NPLs) since the airline filed for bankruptcy in 2020. With Thai Airways’ anticipated exit from rehabilitation, it is expected that these banks will reclassify these loans as performing loans or Stage 1 by the fourth quarter of 2025. This upgrade is contingent upon Thai Airways maintaining consistent debt repayment over five consecutive years from 2020 to 2024.
In an earlier analysis, also by CGSI, the firm anticipated improvements in the NPL ratios and coverage for BBL and KTB following the upgrade of Thai Airways’ loans to performing status. Specifically, BBL’s NPL ratio is expected to decline from 3.64% in the second quarter of 2024 to 3.18%, with its NPL coverage ratio projected to increase from 283% to 321%. For KTB, the NPL ratio is forecasted to decrease from 3.85% in the second quarter of 2024 to 3.59%, and its NPL coverage ratio is expected to rise from 181% to 192%.
Still, CGSI does not anticipate that the banks will reverse their provisions or expected credit loss (ECL). Instead, it is expected that these provisions will be reallocated to management overlay or general provisions.
Under the assumption of a new shareholder structure of Thai Airways following the capital restructuring in the fourth quarter of 2024, which includes a debt-to-equity conversion. Here is a breakdown of the share distribution from CGSI:
1) Ministry of Finance: 32.9%.
2) Creditors in the rehabilitation plan: 38.4%
3) Existing shareholders, THAI employees and new shareholders: 12.4%.
4) Bangkok Bank: 5.8% After the debt-to-equity conversion.
5) Other state enterprises: 5.0%.
6) The Vayupak Fund: 2.7%.
7) Other existing shareholders: Retain a small portion of 2.6%.
