Siam Commercial Bank's FY17E earnings could be hurt by up to 25%

That is if PACE had completely drawn down the credit lines totaling US$481m.

Siam Commercial Bank (SCB) is reportedly a major lender to PACE, a company the market fears may default on its debt obligations after it reported a huge loss from its core businesses. 

Here's more from Maybank Kim Eng:

SET has suspended PACE from trading after PACE’s auditors were unable to reach a conclusion on the 2Q17 financial statements regarding the THB8.9b extra income the company said it gained from losing control of its subsidiaries, while core businesses recorded a loss of THB1.9b.

Excluding those extra gains, PACE would have reported a big loss, pushing its shareholders’ equity to negative territory, a scenario that could trigger a default of its debt obligations including bank loans.

Neither SCB nor PACE has disclosed the amount of exposure they have with each other. However, PACE reported it had THB16b in credit lines from financial institutions and THB9.6b of outstanding bank loans as of end-2Q17.

Given the limited information and media reports that indicate SCB is PACE’s sole lender, we assume SCB bears the entire exposure of THB9.6b, same amount at end-2Q17. PACE also reported its bank loans are backed by valuable collaterals and we estimate they are worth THB5b, a pretty conservative estimate in our view.

Thus, SCB may need about THB4b in provisioning expenses for the THB9.6b of loans that may turn sour, adversely affecting FY17E earnings by 8% and raising NPL by 50bps. If PACE had completely drawn down the credit lines totaling THB16b, SCB’s FY17E earnings could be hurt by 25%.