International Financing Review Asia November 25 2017 13Please send job moves to
[email protected]Thailand to
offer better
protection
Thailand is moving to beef up investor
protection in the rapidly growing domestic
bond market after a recent run of defaults
in short-term securities.
The Securities and Exchange
Commission of Thailand has been meeting
representatives from the bond industry
over the past few weeks to sound out
proposals and gather feedback. New rules
are expected to be introduced next year to
reduce the risks facing individual investors
in both short-dated and long-dated bonds.
“We hope that the amended framework
will provide better protection for
investors,” an SEC spokesperson told IFR.
One of the draft proposals would require
the appointment of a representative,
equivalent to a trustee, in all long-term
corporate bonds that are offered to high-
net-worth investors – defined as investors
with at least Bt70m (US$2.14m) in net asset
value or Bt10m in annual income.
The representative will be tasked with
taking care of the investors’ requirements
in the event of a default, covenant breach
or litigation. Currently, a representative is
only required if the bond is offered to the
general public.
Also under consideration is the
appointment of a financial adviser to
perform due diligence on any public
offering of bonds rated below investment
grade. At the moment, one is required only
in public issues from unlisted companies.
The proposals are also set to require
companies to seek SEC approval forany sale of long-term bonds to HNWIs,
subjecting them to stringent conditions,
such as good corporate governance,
with auditor reports that comply with
accounting standards. Public offerings are
also to be tightened, and issuers which
have corporate governance problems or are
in default will be rejected.
The SEC is also pressing for more
transparency and additional disclosures,
such as key financial ratios, history of
default or breach of bond covenants
over the past three years. Lead managers
and underwriters must ensure that
all information is fully represented to
investors, who may be required to sign a
risk acknowledgement form.
Sales intermediaries, including securities
firms, will also have to do due diligence
on the credit and product screening prior
before selling to HNWIs.
“This will put more cost burdens on
the issuer, and will have an impact on the
primary markets as issuers will be deterred
from selling bonds,” said one DCM head in
Bangkok.DEFAULTED BILLS
Efforts to tighten investor protection
come as Thai high-net-worth investors are
showing increasing appetite for higher-
yielding bonds, despite a spate of defaults in
short-dated paper called bills of exchange.
Some 10 companies have defaulted
on bond payments in 2016-17, of which
an estimated Bt15bn (US$459m) was still
unpaid at the end of September, much
of which was in bills. The default rate,
however, is still low, equal to around 0.46%
of Thailand’s Bt3.2trn total outstanding
corporate bond market.
The SEC and Thai Bond Market
Association are worried that yield-hungryinvestors are taking on risks they do not
fully understand. The SEC recently reminded
equity investors to study the prospectus
carefully before subscribing to an initial
public offering, and similar warnings are
being given for bond investors.
In a statement released in early
November, SEC Assistant Secretary–General
Charuphan Intararoong said debt issuers
had recently “used the channel for offering
to a limited number of investors for the
wrong purpose by extending such offer to
high-net-worth investors who knew little
information on the issuer”.
The new rules will be implemented in
two stages on April 1 and July 1, said the
SEC spokesperson.
The new regulations also address
HNWI investments in short-term bills of
exchange, limiting private placements to
no more than 10 investors and requiring
bond representatives if bills are sold to
HNWIs, among other restrictions. From
July, the SEC is mooting a total ban on sales
to HNWIs and the public.
The bond representative in Thailand
plays a similar role to that of a trustee
in the Singapore dollar bond market.
Recent restructuring cases in the city
state, however, have led to questions over
the trustee’s role in protecting individual
investors, as some trustees in defaulted
Singapore dollar bonds had asked for
an upfront fee and a letter of indemnity
before taking any action on behalf of
the bondholders. These were significant
barriers to individual investors to recover
their investments.
“That will never happen in Thailand,”
said one banker in Bangkok. “The SEC will
make sure that the representative will carry
out its duties fully and responsibly.”
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