Bank of Thailand Governor Veerathai Santiprabhob was the guest of honour at the event and delivered the keynote opening address.

James McCormack, managing director, Head of Sovereigns at Fitch Ratings, highlighted that Fitch forecasts global economic growth of 3.3 per cent and 3.1 per cent in 2018 and 2019, respectively, led by continued above-potential growth in the US supported by fiscal expansion, and strong growth in China, notwithstanding the ongoing trade war.

Risks to the outlook, however, are growing, particularly for emerging markets. As global financial conditions tighten into next year with higher US interest rates, the end of quantitative easing by the European Central Bank and continued appreciation of the US dollar, international capital flows are likely to be more volatile, especially for emerging markets with the largest external funding needs and policy frameworks judged to be weaker.

Thailand is very well placed to deal with these global challenges, running sizeable current account surpluses and maintaining a sound fiscal position. Further escalation of the US-China trade war is a threat to all open economies, including Thailand, and poses downside risks to 2019 growth projections, he said.

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In his presentation on the banking sector, Parson Singha, senior director, Financial Institutions at Fitch Ratings (Thailand) Ltd, noted that the banking sector in the Asia-Pacific region was mostly well-positioned to cope with gradual, well-signalled US interest rate hikes.

One key concern is credit risk, especially in countries with high levels of leverage or weak corporate repayment ability – such as Vietnam, Mongolia and Indonesia. There are also potential liquidity risks if markets are disrupted in stressed scenarios.

Nevertheless, the Asia-Pacific banking sector is supported by improving trends in the operating environment and regulatory backdrop. The Thai banking sector in particular appears able to cope with downside risks due to its limited reliance on foreign funding and sound banking sector buffers such as in capital and liquidity.

Regional investment opportunities and risks were discussed in an executive roundtable. Vincent Milton, managing director of Fitch Ratings (Thailand), moderated a panel on the government’s role and policies in supporting regional investments, infrastructure investments in Asean, and challenges and opportunities for regional investments.

Speakers on the panel comprised Theeraj Athanavanich, bond market adviser, Public Debt Management Office, Ministry of Finance; Helen Han, senior investment officer, Infrastructure and Natural Resources, International Finance Corporation; and Roongroj Rangsiyopash, president and chief executive officer, The Siam Cement Public Co Ltd.

The Fitch Ratings (Thailand) annual conference was attended by more than 300 executives and officials from the regulatory, investor, financial and corporate sectors.

The current lease accounting requirement under International Accounting Standard 17 Leases (“IAS 17”) has been criticised for failing to meet the needs of users of financial statements, as IAS 17 does not require lessees to recognise assets and liabilities arising from long-term operating leases. These are required to be disclosed only in the notes to the financial statements. Additional disclosures provide information about a company’s undiscounted commitments on off-balance-sheet leases only in the notes to the financial statements (as required by IAS 17) but they are not sufficient for some investors and analysts. They often estimate a company’s assets and lease liabilities based on the limited information available, by using techniques that yield estimates but which may not be accurate and may vary widely.

Responding to concerns about the lack of transparency in information about lease obligations, the International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) initiated a project to improve accounting for leases. Finally, in January 2016, the IASB said that IFRS 16 Leases is effective for annual periods beginning on or after January 1, 2019, which requires lessees to recognise assets (right-of-use asset) and liabilities for most leases.

In effect, Thailand has adopted all IFRS standards with a one-year delay from the equivalent IFRS Standard’s effective date, with the exception of the standards relating to financial instruments (IAS 32 Financial Instruments: presentation; IFRS 7 Financial Instruments: Disclosures, and IFRS 9 Financial Instruments) and first time adoption (IFRS 1 First-time Adoption of International Financial Reporting Standards). It means under Thai Financial Reporting Standard 16 (“TFRS 16”) “leasing” will be adopted for the annual period beginning on or after January 1, 2020. Lessors suffer no significant impact from TFRS 16. However, many sectors such as airlines, retailers, healthcare, transport and logistics will be affected by TFRS 16, because it covers not only machinery but also property rent. However, lessees may elect to account for lease payments as an expense on a straight-line basis over the lease term or another systematic basis for the following two types of leases: 1) those with a lease term of 12 months or less and containing no purchase options – this election is made by the class of underlying asset; and 2) leases where the underlying asset has a low value when new (such as personal computers or small items of office furniture) – this election can be made on a lease-by-lease basis.

In addition, key financial metrics will also be affected by TFRS 16. For leases previously classified as a finance lease, there will be no significant change to the key financial metrics derived from the company’s TFRS financial statements. In contrast, for leases previously classified as operating leases, there will be significant changes in some financial metrics if those metrics were based on the amount recognised in TFRS financial statements.

Metric leverage: It is the common method of calculating liabilities/equity.

It increases when financial liabilities increase (and equity is expected to decrease). Applying TFRS 16 to an individual lease, the carrying amount of the lease asset would typically reduce more quickly than the carrying amount of the lease liability. This is because, in each period of the lease, the lease assets typically depreciate on a straight-line basis, and the lease liability is (a) reduced by the amount of lease payment made and (b) increased by the interest reducing over the life of the lease. This could impact debt covenants.

Metric current ratio: It’s a common method of calculating current assets/current liabilities

This could impact debt covenants.

Metric assets turnover: This is a common method of calculation – sales/total assets

They will decrease because lease assets (the right-of-use asset) will be recognised as part of total assets.

Metric EBITDA: This is a common method of calculating earnings before interest, tax, depreciation and amortisation (EBITDA)

They increase because expenses for off-balance-sheet leases are excluded, as EBITDA does not include the depreciation expense of the right-of-use asset and the interest expense whereas the operating lease expense under Thai Accounting Standard 17 (“TAS 17”) is included in EBITDA.

The knock-on effects of TFRS 16 are potentially significant for many Thai entities. Entities would be well advised to consider the knock-on effects in the following areas: performance indicators, bonus targets and executive remuneration schemes, contingent consideration in business combination, tax, debt covenants, ability to pay dividends and regulatory capital requirements.

To avoid unforeseen and potentially undesirable consequences, contractual arrangements may need to be renegotiated and for arrangement under negotiation between now and transition to TFRS 16, the effects of the new accounting carefully considered and pre-empted.

KIATNIYOM KUNTISOOK IS PARTNER, Audit & Assurance Deloitte Thailand

Arkhom Termpittayapaisith, transport minister, said “the Cabinet meeting [yesterday] acknowledged on the court’s ruling and assigned Exat to consider the proper method to proceed with the matter (of the compensation payment). Exat has to make a conclusion. Now, it could not be determined how much the government will help (compensating Exat for the payment).”

Reportedly, Exat’s compensation to NECL came after the Supreme Administrative Court ruled that the construction and operation of Exat’s Don Mueang Tollway in the section of National Memorial-Rangsit has led to competition and impacts, which NECL claimed to be a conflict of interest with its Bang Pa-in-Pak Kret Expressway. As a result, NECL failed to make sufficient revenue under the expressway agreement. Thus, the expressway operation is non-competitive.

Surong Bulakul, executive chairman of Exat, said earlier that the authority had considered the compensation process, which could be one of gradual payment, reduction of contribution to the government or negotiation with the concessionaire for conditions with the least impact to Exat and Thai people. The lowest-cost process will be selected, he said.

If Exat pays compensation plus interest worth about Bt4 billion to NECL, the authority’s financial status will not be affected as it is a state enterprise with high liquidity and profit, he said. Exat earns about Bt70 billion per day in toll-based revenue and the number of cars using the expressway service tend to rise continuously, he added.

Exat’s labour union has requested the current government to help compensate the payment, while wanting the previous government that took office in 2007 and related parties associated with the then-approval of the tollway construction to be responsible for the damages.

He added that the farmers could suspend all payments until the BAAC has completed the restructuring of their debt.

The process is expected to take three years.

Borrowers, whose loans were treated as non-performing as of December 31, 2017, will have to pay half the principal amount within 15 years with the interest rate set at the minimum retail rate minus 3 per cent.

Once half the principal amount is paid, the BAAC would consider restructuring the balance of the debt, he said.