A series of financial scandals in Thailand has raised questions about corporate governance conditions and market supervision. In response, regulatory bodies, including the Securities and Exchange Commission (“SEC”) and the Stock Exchange of Thailand (“SET”), are taking steps to restore public confidence in the local capital market. This post outlines the reforms that have been proposed, and provides background on the scandals that prompted action.

What regulatory reforms are being implemented?

  1. Reviewing the positioning of the SET and Market for Alternative Investment (“MAI”)
    1. The eligibility criteria for companies to be listed on both SET and MAI will be amended to mandate higher profits and greater equity levels, reflecting enhanced financial health and performance.
    2. The initial paid-up capital for both SET and MAI will be standardized to ensure that the capital structure corresponds with the nature of the business.
    3. Small companies will face stricter requirements regarding free float and public offering allocation ratio, aiming to boost liquidity in the secondary market.
  2. Strengthening oversight of listed companies
    1. Assigning the “C” (caution) sign to alert investors about companies that demonstrate deteriorating financial conditions, such as low operational revenue, consistent losses, defaults on loans or debt instruments provided by financial institutions and receiving a disclaimer of opinion from auditors. Those companies are often associated with significant changes, market misconduct, or are targeted for backdoor listing.
    2. Refining delisting procedures by delisting companies that are unable to resolve the grounds for delisting and resume trading within the stipulated timeframe, with the aim of improving the overall quality of listed companies.
    3. The criteria for companies intending to undertake backdoor listings will be made identical to those for initial public offerings, ensuring uniform quality among all listed entities.
  3. Revising or removing specific SET regulations to align with the SEC and the current state of the securities market, such as the Principles of Good Corporate Governance for Listed Companies, the appointment of auditors for special audit, and related party transactions.

The President of the SET stated that the proposed regulations are subject to public hearings in the third quarter of 2023, whereas the announcement of the new criteria will take place at an appropriate time.

Why are these reforms happening?

The recent accounting scandal, regarded as the most shocking in the history of the Thai capital market, involves Stark Corporation Public Company Limited (“STARK”), formerly ranked among the top 100 listed companies in Thailand. The wire and cable manufacturer took an unconventional backdoor route to its 2019 SET listing by acquiring Siam Inter Multimedia Public Company Limited, a SET-listed media company that had experienced financial losses. Initially, STARK’s financial statements indicated substantial profitability, with reported profits approaching THB 3 billion and revenues exceeding THB 10 billion.

In May 2022, STARK raised THB 5.58 billion through a private placement in order to acquire LEONI Kabel GmbH, a listed company on the German stock market. However, in December the company informed the SET that it had decided to abandon the acquisition plan due to the infeasibility of the business in light of Russia’s invasion of Ukraine, and would use the money for other purposes.

Things quickly unravelled. STARK underwent a torrent of turnover to begin 2023, including the replacement of the independent auditor, as well as the reconstitution of the management team, board of directors, and audit committee, and ultimately failed to submit its financial statements for the fiscal year 2022.

When financials were released by the new leadership, notable discrepancies came to light. The previously reported net profit of THB 2.8 billion in fiscal year 2021 was in fact a loss of THB 5.99 billion. With a loss of THB 6.65 billion in fiscal year 2022, the combined two-year loss totalled THB 12.6 billion. Further, there is a potential default on THB 9.2 billion in corporate bonds, impacting over 4,000 bondholders.

In addition to the recent default by STARK, there have been instances of bond payment defaults by other Thai listed companies, namely All Inspire Development Plc and Cho Thavee Plc. These defaults are expected to have a detrimental impact on the bond market, particularly affecting small and medium-sized enterprises that are already struggling to raise capital through debt securities issuances.

Moreover, STARK’s default came on the heels of a series of financial scandals that have occurred since late 2022.

In the final months of 2022, Zipmex Thailand, a cryptocurrency exchange operator, was accused of skirting digital assets regulations. As a result, both the company and its CEO were fined approximately THB 11 million by the SEC. A few months later, authorities froze the assets of investors associated with More Return Plc, a public company listed on the MAI, due to possible fraud. The SEC, in collaboration with the SET and the Anti-Money Laundering Office, initiated an investigation regarding potential stock manipulation.

This year, the share price of Delta Electronics (Thailand) Plc experienced a significant surge, at one point becoming the most valuable stock in the country. However, the company’s failure to provide a satisfactory explanation for the surge prompted the SET to impose trading restrictions, which led to a sudden 23% share price decline and the loss of approximately THB 310 billion in Delta’s market value.

Looking for More?

Glass Lewis continually monitors regulatory developments across the globe so that our clients stay up to date on emerging best practices and local market expectations for key governance and stewardship topics.

For more information on Glass Lewis’ approach to proxy research, contact:

GROW@glasslewis.com (Institutional Investors) | ENGAGE@glasslewis.com (Public Companies)