Banks are expected to set aside over 10 billion baht in total loan loss provisions for embattled Energy Absolute (EA) if the company faces a cross-default, according to UBS Securities (Thailand).
The securities firm estimates the combined loan exposure to EA to be around 32.1 billion baht, consisting of 23.2 billion baht in long-term loans and 8.84 billion baht in short-term loans.
In the event of a cross-default, creditors would require a total provision expense of 10.8 billion baht.
Cross-default is a provision in a bond indenture or loan agreement that puts a borrower in default if the borrower defaults on another obligation.
According to EA's 2023 annual report, Siam Commercial Bank (SCB), Bank of Ayudhya (Krungsri) and Mizuho Bank Bangkok Branch are the company's regularly contacted financial institutions.
UBS expects major creditors to finance EA at both the holding company and subsidiary levels, offering long-term corporate finance and short-term working capital loans.
The loans from SCB and KKP are anticipated to constitute a larger portion of each bank's total loan portfolio compared to their peers.
In this scenario, UBS forecasts that SCB and KKP will fully provision for the loan loss associated with EA's electric vehicle bus and battery projects, and 70% for short-term loans based on low collateral.
However, the two major banks would set aside lower reserves for EA's solar and wind power plant projects at 20% per bank, given the contractual revenues and escrow accounts associated with these projects, the securities firm said.
Other banks financing EA are also expected to set aside loan loss provisions, according to UBS research.
Bangkok Bank, Thailand's largest bank, is projected to lend 3.5 billion baht to EA, with 2 billion baht in long-term loans and 1.5 billion baht in short-term loans. The bank's provision for this corporate customer would be around 1.45 billion baht.
Krungthai Bank, the country's second-largest bank, is expected to extend a total of 2 billion baht to EA, evenly split between long-term and short-term loans at 1 billion baht each, with a provision expense of 900 million baht.
Kasikornbank, Thailand's third-largest bank, is anticipated to finance EA with 1 billion baht, split equally between long-term and short-term loans at 500 million baht each, with a reserve of 450 million baht.
TMBThanachart Bank (ttb) is expected to provide a short-term loan of 500 million baht to EA, setting aside 350 million baht for loan loss reserves.
Additionally, other banks are expected to have a total loan exposure to EA amounting to 9.24 billion baht, with 7.89 billion baht in long-term loans and 1.35 billion baht in short-term loans.
The total reserve for other creditors is expected to be 2.52 billion baht, according to UBS research.
