Energy Earth Bankruptcy
Getting to know Energy Earth
Energy Earth
public company limited is a Thailand-based company engaged in the import and
distribution of coal. It was firstly public in Market for Alternative
Investment – MAI in 2010.The main operation of the company is about outsourcing
to mine coal in Indonesia and distribute to users in both domestic and overseas
market, especially in China.
What went
wrong with Energy Earth stock and bonds?
Company’s
executive members misused capital by borrowing money to trade stock. They took
their own stock as collateral in block trade transactions. When Earth’s stock
price fell, Investors(Company’s executive members) were forced sell which means
they have to sell their stock to pay loan for block trade. Investors sold a
large quantity of stocks; as a result, stock price dropped sharply and caused
panic sell from other investors. This situation wiped out liquidity from the
company. If the company lacks of liquidity, they won’t be able to pay debt from
bonds and B/E or Bill of exchange (Short-term debt securities issued by private
companies to raise short-term capital). Then, Company declared to SEC that they
defaulted. After that credit rating agency downgraded credit rating from BBB-
to D immediately.
Timeline
12 May, 2017– the energy earth stock and bond price was
falling down on the second floor.
“Company’s
executive members misused capital by borrowing money to trade stock. They took
their own stock as collateral in block trade transactions. When Earth’s stock
price fell, Investors (Company’s executive members) were forced sell which
means they have to sell their stock to pay loan for block trade. Investors sold
a large quantity of stocks; as a result, stock price dropped sharply and caused
panic sell from other investors.” – refer the information
mentioned above
7 June, 2017 - energy Earth Public Company Limited declared
the subject "default of bill of exchange" or B/E 40 million baht
including other next repayments.
8 June, 2017 – the price fell to the third floor. Simultaneously,
the SEC has ordered Energy earth Plc. to clarify of the event of default of
Bills of Exchange: the cause of the default, relevant impacts and recovery
plan, including the reason why the company failed to make necessary preparation
in advance to avoid such default within seven days.
Energy
Earth’s operating report
From 2014
to the first quarter of 2017
basis
|
Quarter 1/2017
|
2016
|
2015
|
2014
|
Asset
|
35,725.08
|
34,056.23
|
29,429.67
|
17,940.93
|
Liability
|
25,034.12
|
22,944.71
|
18,718.52
|
12,643.91
|
Revenue
|
7,861
|
18,502
|
17,168
|
14,917
|
Profit (Loss)
|
(68)
|
871
|
1,026
|
1,042
|
Unit: million baht
Source: The stock exchange
of Thailand: SET
Creditors of the Energy Earth public limited
company
The large portion is Krungthai bank: KTB about 10,000 million baht.
Apart from KTB, Energy Earth has other three bank creditors: Kasikorn bank,
Bank of Ayudhya and the ExportImport Bank of Thailand.
Another portion is creditors from bond and bill of exchange.
14 June, 2017 – trading party of Energy Earth stock and bond leads to shareholders
of Earth energy Plc. extending from 7,201 to 18,000 persons. (They likely
to predict that the Energy EarthPlc. have enough liquidity to operate its own
business.)
15 June, 2017 - Energy Earth Public Company Limited inform
the clarification of the event of default of Bills of Exchange. That is, the
company heavily lacks of liquidity. Furthermore, In order to prevent investor from fraud Company, SEC
marked a SPsign to the earth stock.
23 June, 2017 – the SEC ordered the earth energy Plc. to
assign special audits from big4, then prepare and inform financial report
within 30 days.
21 July, 2017 – the energy earth asked the SEC to extend deadline to
submit a special audit report.
24 July, 2017 - the energy earth had summited a rehabilitation petition
through the Central Bankruptcy Court because the company had liabilities in
excess of assets totaling 26 billion baht due to prosecution by suppliers.
9 August, 2017 - the SEC ordered the Energy Earth
to arrange a special audit report regarding the source, existence and status of
additional debt, as the amount of increase debt had reach 1.21 times of the company’s financial
position. (According to the SEC, the report should be submitted within 30
days.)
Who lost
money or are likely to lose money?
Shareholders
(18,000 persons) were lost money due to heavily dropped of stock price
Lenders and
bondholders (Creditors: Krungthai bank,Kasikorn bank, Bank of Ayudhya and
the ExportImport Bank of Thailand, and other bondholders) are likely to lose money because
company has less asset than debt.
What types
of risks are realized?
Moral hazard
What are the
responses of SEC?
In order to
prevent investor from fraud company, SEC marked a SP(suspended) sign to the
earth stock and appointed special audits to investigate Earth’s suspicious
financial report.
Block trade
and Leverage terminology
Block trade is the trading method that matching the investor want to buy a future contract of stock and the security company at the price and quantity that both parties have agreed to provide more liquidity for this stock.
Leverage is type of loan for investment. Let’s say, you use leverage 1:2 and 100$ in cash this makes your purchasing power equal to 200$ if you buy a stock at 10$ per share when stock price drops to 5$ per share, you will be forced sell and lost all of your money.
Leverage is type of loan for investment. Let’s say, you use leverage 1:2 and 100$ in cash this makes your purchasing power equal to 200$ if you buy a stock at 10$ per share when stock price drops to 5$ per share, you will be forced sell and lost all of your money.
Sources:
