Bangkok Bank sued by Fox for not paying bank guarantees worth US$71m

But the bank insists it does not have to pay.

Bloomberg reported that Fox Networks Group Asia has filed suit in Hong Kong court against BBL for allegedly failing to pay USD71m of bank guarantees for unpaid license fees of media companies that carry the American entertainment company’s pay TV channels in Thailand.

According to Maybank Kim Eng, after the market close, BBL released a statement saying that the bank is the guarantor for the contract and will pay only if CTH does not fulfil the agreed obligation. CTH is a Thai media company that buys content from Fox based on licensing fees.

However, in this case, CTH insists that it is Fox itself that has not fulfilled the agreements and therefore BBL is not obligated to pay as Fox demands. BBL has indicated that it will not comment further as the case is now in litigation.

Here's more from Maybank Kim Eng:

Our base case remains that CTH will perform on its debts regardless of the outcome of the dispute. But the Fox suit is likely to take a very long time before it is concluded.

If CTH eventually loses the case against Fox and BBL needs to pay, BBL will convert the settlement into a loan to CTH. BBL insists that CTH is performing on all of its loans due to the support of its wealthy owners after the company officially shut its operations in September.

Assuming the court rules against CTH and BBL, and the former cannot pay the USD71m (THP2.5b), the NPL will affect the bank’s annual net profit by about 5% (assuming the coverage ratio is unchanged). Note that as of the end of 3Q16, the total outstanding loans owned by CTH to BBL were about THB5-8b (the bank does not publicly disclose the amount).

Weak loan growth a larger concern than CTH risk
While CTH’s ability to repay its debt obligations poses a risk to BBL’s earnings, the weak macro loan growth outlook is of greater concern. This is because large corporates increasingly prefer raising funds in the bond market where interest rates are lower, and this segment is BBL’s main target group.