Shares of Kasikornbank (KBANK) and Siam Commercial Bank (SCB) fell sharply on Thursday as investors were concerned that Stark Corporation (STARK) may default on loan payments with both banks, say analysts.
Stark, a holding company with subsidiaries involved in cable manufacturing and logistics, informed the Stock Exchange of Thailand (SET) on Wednesday it needs to "delay the submission of the consolidated and separated financial statements" for 2022 from the end of the reporting period on April 21.
In its filing, the company said the request was based on a change of its board of directors and executives, while "some of the information is being audited by the auditor".
On the same day, Stark informed the SET it received resignation letters from seven directors and sub-committees, citing personal issues and that they were unable to perform their duties at full capacity. The board of directors appointed new directors to replace them.
Vonnarat Tangkaravakoon, Stark's largest shareholder and director of TOA Paint (Thailand), was appointed as Stark's acting chief executive, effective April 18.
"The new board of directors and executives will address such issues in an appropriate, efficient and transparent manner. The company anticipates submitting such financial statements between May and June 20," said the statement.
TOA Paint (Thailand) sent a filing to the SET stating "there is no and has never been any relation with STARK in terms of investment, shareholding, or co-management".
"Some directors may hold positions of directors and/or executives of STARK, but such positions are personal and not related to the company in any way," according to TOA.
The SET has suspended trading of Stark shares since March 1 after the company failed to submit financial statements for 2022.
An analyst with Krungsri Capital Securities said the emerging issues with Stark have led to negative sentiment for KBANK and SCB, the major creditors of the company, as the expected credit loss is expected to increase.
Stark had total bank loans of 8.61 billion baht in the first nine months of last year, with unsecured loans accounting for 1.2 billion baht. KBank reportedly extended 5 billion baht worth of loans to Stark, with an additional 2-3 billion baht from SCB.
If Stark defaults on its loan payments, KBank will have to set aside additional provisions for 88% of its outstanding debt, posing an 8% downside risk to the bank's expected net profit of 39.7 billion baht this year, said the analyst. KBANK's target share price of 160 baht this year would have a downside of 10 baht, according to the brokerage.
Tisco Securities cited the possibility that Stark may default on loan payments, but noted such information is unlikely to be disclosed by the banks. Stark's borrowing is so large a default would affect the banking sector substantially, noted Tisco.
The brokerage said as of the third quarter of 2022, Stark's properties collateralised for loans were worth 6.6 billion baht, but with an appraised value of only 1.7 billion baht.
Executives of both banks declined to comment on the matter when reached by the Bangkok Post.
Shares of KBANK lost 4.18% on Thursday on the SET, falling to 126 baht in trade worth 7.28 billion baht, while SCB lost 0.75% to 99.75 baht in trade worth 3.63 billion baht.