Italian-Thai development grapples with liquidity crisis amid scandals

Thailand’s leading construction firm, Italian-Thai Development Plc (ITD), is grappling with a liquidity crisis that has alarmed investors, regulators, and rating agencies. This scenario follows a series of local corporate scandals and debt defaults that have already unnerved the market.

ITD confirmed yesterday, March 13, that it is seeking new loans from banks to alleviate the current cash crunch that has resulted in delayed payments to employees and contractors. Trading of ITD shares was halted this month following the company’s failure to submit its 2023 full-year financial statement on time. The company’s total liabilities as of September 30, including bonds, loans, and trade credit, amounted to 108 billion baht (US$ 3 billion).

From 2020 to 2022, ITD registered a cumulative loss of approximately 6 billion baht (US$168 million), following its undertaking of engineering projects in regions such as India, Taiwan, and Myanmar. The imposition of military rule in Myanmar led to project delays, shutdowns, and write-downs.

As a result of the financial strain, ITD is considering selling a mining unit and extending the maturity period of bonds worth about 15 billion baht (US$ 420 million) by two years. The company’s shares plummeted by half from a 2023 high of 1.69 baht (US$ 0.047), resulting in a market capitalisation of 4.5 billion baht (US$126 million).

Narongsak Plodmechai, the CEO of SCB Asset Management, pointed to a weak market.

“The market is nervous about the banks that are owed and how much loan exposure they have. It just adds more noise to the already weak market sentiment.”

ITD reported total revenue of 47 billion baht (US$ 1.3 billion) in the first three quarters of 2023 but swung to a loss of 45 million baht (US$ 1.26 billion) in the July-September period. The company has requested an extension of the financial statement filing deadline to March 29 from the Stock Exchange of Thailand, attributing the need for an extension to ongoing information processing and auditor reviews.

Financial crisis

Pornanong Budsaratragoon, the Secretary-General of the Securities and Exchange Commission (SEC), revealed the severity of the situation on Monday.

“We have been in close discussion with related parties about Italian-Thai. The impact will probably be much greater than other cases if the company has financial trouble given its size.”

The SEC is intensifying its oversight of risky bond issuers to enhance payment safeguards and bolster investor confidence. The demand for high-yield debt in Thailand has declined following a series of payment delays and corporate scandals.

ITD admitted in an exchange filing on Wednesday that its construction project revenues are insufficient to cover overall expenses, and some employees have not received their full salaries.

TRIS Rating issued a negative CreditAlert on ITD’s BB+ rating on January 12, following the company’s move to amend financial covenants and extend bond maturities. TRIS indicated last week that a downgrade is likely if there is a significant deterioration in ITD’s financial position after the auditor’s extended review.

ITD’s major contracts include infrastructure projects with government agencies, such as a new high-speed train line, motorways, and an intercity motorway. ITD was also the principal contractor on Suvarnabhumi International Airport, the country’s largest facility, and Bangkok’s first subway line.

The construction behemoth was established in the 1950s by Chaijudh Karnasuta and Italian Giorgio Berlingieri following their collaboration in salvaging five sunken ships in the Chao Phraya River. Chaijudh’s children, including ITD President Premchai Karnasuta and Nijaporn Charanachitta, are also among the top shareholders of the Mandarin Oriental Bangkok hotel’s operating firm, reported Bangkok Post.

Premchai, not a stranger to controversy, was sentenced to prison in December 2021 for wildlife poaching, including a rare black panther. He was released on parole in October 2023.