Corporate Debt Hits Highest Level in 6 Years - COVID-19 Drains Liquidity

Corporate debt has surged to its highest level in nearly 6 years, driven by the impact of COVID-19 on liquidity. A total of 71 companies have interest-bearing debt exceeding twice their equity, with the highest ratio reaching 26.35 times. Many large corporations are on the list, and 15 companies are showing signs of tightening liquidity. The Stock Exchange of Thailand (SET) is monitoring the situation closely, and analysts warn investors to be cautious.

*** Corporate Debt Hits Highest Level in Nearly 6 Years

"eFinanceThai News Agency" has surveyed the debt-to-equity (D/E) ratios of listed companies after the financial statements for Q3/2020 were released. It was found that the average debt-to-equity ratio of listed companies is 3.12 times, the highest in nearly 6 years (compared to an average of 3.19 times at the end of 2014).

Excluding the financial sector, the debt-to-equity ratio stands at 1.63 times, up from 1.35 times in the same period last year, while it has remained between 1.2 and 1.4 times over the past 6 years.

As of the end of Q3/2020, the ICT sector has the highest debt-to-equity ratio at 4.22 times, followed by the construction sector at 2.65 times and the transportation/logistics sector at 2.63 times.

*** 71 Companies Have Interest-Bearing Debt Exceeding Twice Their Equity

Meanwhile, a company-by-company analysis revealed that 71 companies have an interest-bearing debt-to-equity (IBD/E) ratio exceeding 2 times, with 57 listed on the Stock Exchange of Thailand (SET) and 13 on the Market for Alternative Investment (mai). The real estate sector has the highest number of companies on the list, with 10 companies, followed by the energy and ICT sectors, each with 9 companies. The top 30 companies with the highest IBD/E ratios are as follows:
 

All 30 companies have an IBD/E ratio exceeding 3 times, with 5 companies exceeding 10 times. Uniq Mining Services Public Company Limited (UMS) has the highest interest-bearing debt-to-equity ratio at 26.35 times, followed by Jutha Public Company Limited (JUTHA) and JCKH Hospitality Public Company Limited (JCKH) with IBD/E ratios of 25.37 and 21.83 times, respectively. All three companies have seen their equity decrease due to continuous losses and have been marked with a "C" by the Stock Exchange.

When calculating IBD/E against equity, these three companies have interest-bearing debts of 547.29 million baht, 1,237.55 million baht, and 679.13 million baht, respectively.

Meanwhile, True Corporation Public Company Limited (TRUE) and Minor International Public Company Limited (MINT) have the highest interest-bearing debts valued at 278 billion baht and 243 billion baht, respectively.
    
Interest-Bearing Debt = Calculated from (Total Current Liabilities - Trade and Other Payables + Net Liabilities Due Within One Year) / Equity

*** 15 Companies Facing Liquidity Tightness

Additionally, it was found that 15 out of the 71 companies with an IBD/E ratio exceeding 2 times are beginning to experience liquidity tightness, as indicated by an interest coverage ratio below 1 and negative operating cash flow at the end of Q3/2020. These companies include:
 

13 out of the 15 companies listed above reported losses for the first 9 months of 2020, with only Mahachai Hospital Public Company Limited (M-CHAI) and Cheewathai Public Company Limited (CHEWA) still showing profits.

Additionally, 12 companies have negative interest coverage ratios, with Esso (Thailand) Public Company Limited (ESSO) having the highest negative ratio at 38.32 times.

On the other hand, Minor International Public Company Limited (MINT) reported the highest negative operating cash flow at 1,745.24 million baht.

Interest Coverage Ratio: Calculated from Earnings (Loss) Before Financial Costs and Income Tax / Financial Costs, used to measure the ability to pay interest on loans. A ratio above 1 indicates full ability to pay interest, while a ratio below 1 indicates partial payment capability. A negative ratio means an inability to pay interest, posing a risk of liquidity issues in the future.

*** SET Monitoring 3 High-Risk Sectors

"Manpong Senanurak," Deputy Manager and Head of Securities Issuer Division at the Stock Exchange of Thailand (SET), assessed that COVID-19 has significantly impacted corporate liquidity, leading to increased debt levels over recent years. The SET is closely monitoring, especially sectors directly affected, such as finance, which faces increased provisions for bad debts, and sectors reliant on foreign tourists, such as transportation and tourism/leisure.

According to "Kritpol Praipaisankit," Director of Analysis and Strategy at UOB Kay Hian Securities (Thailand), stocks in these sectors carry high risks and are advised to be avoided.

"Most stocks in this group are in troubled industries, experiencing a downturn. From a fundamental perspective, they are not worth investing in. Speculating on them is not advisable, even if prices occasionally rebound due to news, as the risks are very high. Many companies have been marked with a 'C' by the Stock Exchange. Investors should avoid them due to fundamental issues, especially concerning debt. There have been previous lessons where many companies faced trading suspensions or were forced to increase capital," Kritpol stated.

Note: This article presents information from the financial statements of listed companies from the Stock Exchange of Thailand (SET) for investors to consider in their decision-making. It does not imply that the companies mentioned will default on their debts or need to increase their registered capital.

SOURCE: www.efinancethai.com