As the public awaits clarity on the formation of a new government, investor confidence is trying to rebound from the plunge caused by alleged fraud at Stark Corporation.
The case involved a large number of shareholders, bondholders and creditors, with an estimated loss of 100 billion baht.
The scandal highlights the ineffective supervision of stock market regulators in acknowledging potential fraud and curbing damage in a timely manner, said analysts.
The Finance Ministry assigning related agencies to speed up the investigation and the Department of Special Investigation's (DSI) agreement to initiate a probe on wrongdoing among the company's former executives also indicate the complexity of the Stark case and why it has become such a major concern in the Thai capital market.
Q: How far back do the questions about accounting stretch?
Some investors noticed irregularities about Stark after the company twice asked for a delay in submitting its 2022 financial results, in addition to the entire board of directors offering their resignations.
Following the resignation of the chef executive on Feb 10, Stark wrote later that month it would miss a March 1 deadline for filing its financial statements, noting some information was being reviewed by its auditor. The company's stock was suspended from trade for three months from that date.
On March 31, Stark asked for a delay in submitting its financial statements. In mid-April, chairman Chanin Yensudchai and other board members quit, while the chief financial officer was changed.
At this time, Stark asked for another delay in submitting its financial statements.
On June 16, Stark finally released its financial statements, which showed a net loss of 6.61 billion baht for 2022, following a restated loss of 5.97 billion baht for 2021. Deloitte Touche Tohmatsu Jaiyos Co audited Stark's financial statements for 2021 and reported the company posted a profit of 2.79 billion baht, but Stark said it identified multiple errors in that statement.
A special audit conducted by PricewaterhouseCoopers found various irregularities. Among the findings are unusual sales transactions worth 8 billion baht in 2022 and 3.59 billion baht in 2021, as well as fake payer names and payments on behalf of customers from accounts of the company's former officers.
Stark said it filed a complaint with the DSI, invoking securities law to request an inquiry into the conduct of directors or managers whose performances led to "reasonably suspicious circumstances".
According to the DSI, there is evidence suggesting at least three former Stark executives were involved in alleged fraud and violations of the Securities and Exchange Act. The department has seized more than 100 million baht in assets from the listed wire and cable manufacturer, while damage caused by the alleged fraud of its former executives could reach 100 billion baht.
Some of the damages are linked to Stark's shares diving to near-zero, slashing its value to about US$11 million from last year's peak of more than $1.7 billion. The plunge has adversely affected more than 10,000 small shareholders.
Q: What is the history of Stark Corporation?
Stark was transformed from comics publisher and distributor Siam Inter Multimedia (SMM), which was founded in 1990.
The company changed its name to Stark in 2019 after Vonnarat Tangkaravakoon, the eldest son of one of Thailand's wealthiest families, which founded the country's leading paint producer TOA, acquired majority control of the company.
Stark became a listed company on the Stock Exchange of Thailand (SET) through a backdoor listing of SMM. Mr Vonnarat shifted the media and publishing company into a manufacturer of electrical wires and cable by acquiring cable maker Phelps Dodge International (Thailand) Ltd, originally the Thai operations of US-based Phelps Dodge International.
Stark continued to post rapid growth through acquisitions, including industrial product businesses in Vietnam.
In May of last year, the company announced a €560-million deal to buy Leoni Business Group Automotive Cable Solutions, a German maker of automotive cable solutions, its first major expansion outside Asia. Stark withdrew from the deal in December, and Leoni is now claiming €608 million in damages.
While backing out of the deal, Stark said it would allocate 5.58 billion baht raised from investors including Credit Suisse and HSBC Holdings Plc for other financing purposes.
Q: What are the liabilities owed by Stark?
Market scrutiny of Stark surged after holders of two bonds worth a combined 2.24 billion baht sought immediate payment of the principal and interest. The resolution means it is highly unlikely Stark will be able to pay for three other bond series with a total outstanding value of roughly 6.96 billion baht, known as a "cross default".
Stark shares plunged 92% on June 1, the first day the stock resumed trading after a three-month suspension.
On June 20, Kasikornbank and Asia Plus Securities, representatives for Stark Corporation's bondholders, called for the immediate payment of another three series of bonds worth more than 6.9 billion baht, adding to Stark's financial woes.
They demanded the company pay the principal and interest by July 20.
Adisorn Songkhla Co, a Stark unit, also defaulted on three notes worth 127 million baht on June 1.
Both the Securities and Exchange Commission (SEC) and the SET warned investors to exercise caution in trading STARK securities.
As of Dec 31 last year, Stark had roughly 39 billion baht in liabilities, most of which were bonds, loans and trade credit. It also had negative shareholder equity of 4.4 billion baht, as total liabilities exceeded assets.
Stark has repeatedly said it will not pay any debt until the company reaches agreements with every bondholder and creditor about the repayment methods.
More than 1,750 retail investors affected by the Stark case registered with the Thai Investors Association (TIA) for class action legal proceedings totalling 4.06 billion baht in damages.
Mutual funds that invested in Stark corporate bonds threatened to sue the company as management has defaulted on payment.
Q: What is the likelihood Stark could be delisted from the SET?
After recording negative shareholder equity of nearly 2.9 billion baht and 4.4 billion for two consecutive years, the SET said Stark is poised to be delisted from the bourse.
The SET suspended trade of Stark securities from July 1 until the company can eliminate the grounds for delisting and qualify to resume trading.
"Stark must disclose its process for eliminating the grounds for delisting based on negative equity, including a timeline for informing shareholders and investors, by July 19," the bourse said in a statement on June 19.
If the equity is negative for three years from that deadline, that is another basis for delisting, said the SET.
Failure to sort out the negative equity could lead to delisting from the SET, said the bourse.
Mr Vonnarat, in his current capacity as director of Stark, informed the SET the company is preparing to file with the Bankruptcy Court to restructure its capital and debts.
Under the restructuring plan, Stark may ask creditors to swap their debt into equity. The company also cited the possibility of securing funds through the sale of non-core assets and increasing the registered capital by allocating new shares to both existing shareholders and new investors.
Regarding debts, Mr Vonnarat reiterated the company would negotiate with all major creditors to encourage them to refrain from exercising the right to accelerate their debt payments, and to support the company's capital and debt restructuring plans.
Q: What are regulators doing to repair investor confidence?
As the Stark case has eroded confidence in the Thai stock market, both the SEC and SET have agreed to upgrade listing regulations and strengthen supervision to enhance the quality of listed companies.
The SET plans to strengthen its oversight of listed companies by revising the regulations for assigning the C (caution) sign, delisting and backdoor listing to improve the quality of listed companies and protect investor benefits.
The SEC plans to apply the same qualifications for companies seeking backdoor listings as initial public offerings to ensure all listed companies have similar quality.
To reposition the SET and Market for Alternative Investment, the qualifications of companies listed on both markets will be revised to require higher profitability and shareholders' equity, reflecting stronger financial health and performance, said SET president Pakorn Peetathawatchai.
The requirements for free float and the public offering allocation ratio of small companies will also be increased to improve the liquidity of the secondary market, said Mr Pakorn.
The amendments will take into account the size and financial position of listed companies or those wishing to list. Beefing up the supervision of listed companies to enhance their quality and protect investors is among the adjustments, he said.
The SET said oversight of listed companies should be stepped up, with the bourse adding options for when it can post the C sign to warn investors about companies with a deteriorating financial position, low operating revenue or losses for an extended period, or that have defaulted on financial institutions' loans or debt instruments, or face a disclaimer of opinion by auditors.
Delisting rules should also become more stringent. For example, the SET board will delist companies that are unable to resolve the grounds for delisting and return to trading by the required deadline, said Mr Pakorn.
The new rules are subject to public hearings in the third quarter, while the new criteria will be announced at an appropriate time, he said.
Thawatchai Pittayasophon, acting secretary-general of the SEC, warned that members of the management team and others including auditing companies involved in any fraud related to Stark could face up to 10 years in prison if found guilty.
